Reference no: EM132747284
Question - Joyner Company's income statement for Year 2 follows:
Joyner Company's Income Statement
Sales $797,000
Cost of goods sold 401,000
Gross margin 396,000
Selling and administrative expenses 231,000
Net operating income 165,000
Non-operating items:
Gain on sale of equipment 7,000
Income before taxes 172,000
Income taxes 68,800
Net income $103,200
Its balance sheet amounts at the end of Years 1 and 2 are as follows:
Joyner Company's Balance Sheet
|
|
Year 2
|
Year 1
|
Assets
|
|
|
Cash
|
$91,600
|
$179,000
|
Accounts receivable
|
266,000
|
145,000
|
Inventory
|
319,000
|
282,000
|
Prepaid expenses
|
8,500
|
17,000
|
Total current assets
|
685,100
|
623,000
|
Property, plant, and equipment
|
543,000
|
384,000
|
Less accumulated depreciation
|
165,400
|
131,400
|
Net property, plant, and equipment
|
377,600
|
252,600
|
Loan to Hymans Company
|
87,000
|
0
|
Total assets
|
$1,149,700
|
$875,600
|
Liabilities and Stockholders' Equity
|
|
|
Accounts payable
|
311,000
|
258,000
|
Accrued liabilities
|
46,000
|
52,000
|
Income taxes payable
|
85,000
|
81,600
|
Total current liabilities
|
442,000
|
391,600
|
Bonds payable
|
199,000
|
114,000
|
Total liabilities
|
641,000
|
505,600
|
Common stock
|
339,000
|
273,000
|
Retained earnings
|
169,700
|
97,000
|
Total stockholders' equity
|
508,700
|
370,000
|
Total liabilities and stockholders' equity
|
$1,149,700
|
$875,600
|
Equipment that had cost $30,500 and on which there was accumulated depreciation of $11,400 was sold during Year 2 for $26,100. The company declared and paid a cash dividend during Year 2. It did not retire any bonds or repurchase any of its own stock.
Sam Conway, president of the company, considers $95,600 to be the minimum cash balance for operating purposes. As can be seen from the balance sheet data, only $91,600 in cash was available at the end of the current year. The sharp decline is puzzling to Mr. Conway, particularly because sales and profits are at a record high.
Required -
1. Using the direct method, adjust the company's income statement to a cash basis for Year 2.
2. Using the data from (1) above and other data from the problem as needed, statement of cash flows for Year 2.