PROBLEM 1- Prepare a Statement of Cash Flows; Free Cash Flow
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:
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.
PROBLEM 2 Missing Data; Statement of Cash Flows
Yoric Company listed the net changes in its balance sheet accounts for the past year as follows:
Debits > Credits by: Credits > Debits by:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 110,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,000
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Long-term loans to subsidiaries . . . . . . . . . . . . . 30,000
Long-term investments . . . . . . . . . . . . . . . . . . . . 80,000
Plant and equipment . . . . . . . . . . . . . . . . . . . . . . 220,000
Accumulated depreciation . . . . . . . . . . . . . . . . . 5,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . 16,000
Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 50,000
$606,000 $606,000
The following additional information is available about last year's activities:
a. Net income for the year was $ __________ ? .
b. The company sold equipment during the year for $15,000. The equipment originally cost $50,000 and it had $37,000 in accumulated depreciation at the time of sale.
c. Cash dividends of $20,000 were declared and paid during the year.
d. The beginning and ending balances in the Plant and Equipment and Accumulated Depreciation accounts are given below:
Beginning Ending
Plant and equipment . . . . . . . . . . . . . . . . . $1,580,000 $1,800,000
Accumulated depreciation . . . . . . . . . . . . . $675,000 $680,000
e. The balance in the Cash account at the beginning of the year was $23,000; the balance at the end of the year was $ ? __________ .
f. If data are not given explaining the change in an account, make the most reasonable assump¬tion as to the cause of the change.
Required:
Using the indirect method, prepare a statement of cash flows for the year.