Question

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:


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 theyear.


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  • CreatedMay 20, 2014
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