Reference no: EM131439843

Assignment

Prepare a Statement of Cash Flows; Free Cash Flow [LO14-1, LO14-2, LO14-3] Joyner Company's income statement for Year 2 follows:

Sales                                              $900,000
Cost of goods sold                           500,000
Gross margin                                   400,000
Selling and administrative expenses    328,000
Net operating income                        72,000
Gain on sale of equipment                 8,000
Income before taxes                         80,000
Income taxes                                   24,000
Net income                                     $ 56,000

Its balance sheet amounts at the end of Years 1 and 2 are as follows:

                                                       Year 2                Year 1
Assets
Cash                                               $ 4,000              $ 21,000
Accounts receivable                           250,000              170,000
Inventory                                         310,000              260,000
Prepaid expenses                              7,000                  14,000
Total current assets                          571,000               465,000
Property, plant, and equipment          510,000               400,000
Less accumulated depreciation           132,000               120,000
Net property, plant, and equipment    378,000               280,000
Loan to Hymans Company                 40,000                      0
Total assets                                     $989,000             $745,000
Liabilities and Stockholders' Equity
Accounts payable                              $310,000             $250,000
Accrued liabilities                                20,000                30,000
Income taxes payable                         45,000                42,000
Total current liabilities                         375,000              322,000
Bonds payable                                   190,000              70,000
Total liabilities                                    565,000              392,000
Common stock                                  300,000              270,000
Retained earnings                              124,000              83,000
Total stockholders' equity                   424,000              353,000
Total liabilities and stockholders' equity $989,000            $745,000

Equipment that had cost $40,000 and on which there was accumulated depreciation of $30,000 was sold during Year 2 for $18,000. The company declared and paid a cash dividend during Year 2. It did not retire any bonds or repurchase any of its own stock.

Required:

1. Using the indirect method, compute the net cash provided by operating activities for Year 2.

2. Prepare a statement of cash flows for Year 2.

3. Compute the free cash flow for Year 2.

4. Briefly explain why cash declined so sharply during the year.