Complete "Problem 14-10 Prepare a Statement of Cash Flows; Free Cash Flow" in chapter 14 of Managerial Accounting. Present your responses in an Excel spreadsheet.
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
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
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.
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.
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.
