Briefly explain why cash declined so sharply during the year

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Reference no: EM131329021

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

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.

Reference no: EM131329021

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