Joyner Company s income statement for Year 2 Tollows: Joyner Company's Income Statement Sales Cost of...

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Joyner Company s income statement for Year 2 Tollows: Joyner Company's Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of equipment Income before taxes Income taxes Net income $ 900,000 500,000 400,000 328,000 72,000 8,000 80,000 24,000 $ 56,000 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Joyner Company's Balance Sheet Year 2 Year 1 Assets Cash Accounts receivable Inventory Prepaid expenses Total current assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Loan to Hymans Company Total assets Liabilities and Stockholders' Equity Accounts payable Accrued liabilities Income taxes payable $ 4,000 250,000 $ 21,000 170,000 260,000 310,000 7,000 14,000 571,000 465,000 510,000 400,000 132,000 120,000 378,000 280,000 40,000 $ 989,000 $ 745,000 250,000 310,000 20,000 30,000 45,000 42,000 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. Sam Conway, president of the company, considers $15,000 to be the minimum cash balance for operating purposes. As can be seen from the balance sheet data, only $4,000 in cash was available at the end of the current year. The sharp decline is puzzling to Mr. Conway, particularly because sales and profits are at a record high. Required: 1. Using the direct method, adjust the company's income statement to a cash basis for Year 2. 2. Using the data from (1) above and other data from the problem as needed, prepare a statement of cash flows for Year 2. Joyner Company s income statement for Year 2 Tollows: Joyner Company's Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of equipment Income before taxes Income taxes Net income $ 900,000 500,000 400,000 328,000 72,000 8,000 80,000 24,000 $ 56,000 Its balance sheet amounts at the end of Years 1 and 2 are as follows: Joyner Company's Balance Sheet Year 2 Year 1 Assets Cash Accounts receivable Inventory Prepaid expenses Total current assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Loan to Hymans Company Total assets Liabilities and Stockholders' Equity Accounts payable Accrued liabilities Income taxes payable $ 4,000 250,000 $ 21,000 170,000 260,000 310,000 7,000 14,000 571,000 465,000 510,000 400,000 132,000 120,000 378,000 280,000 40,000 $ 989,000 $ 745,000 250,000 310,000 20,000 30,000 45,000 42,000 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. Sam Conway, president of the company, considers $15,000 to be the minimum cash balance for operating purposes. As can be seen from the balance sheet data, only $4,000 in cash was available at the end of the current year. The sharp decline is puzzling to Mr. Conway, particularly because sales and profits are at a record high. Required: 1. Using the direct method, adjust the company's income statement to a cash basis for Year 2. 2. Using the data from (1) above and other data from the problem as needed, prepare a statement of cash flows for Year 2.

Answer rating: 100% (QA)

To adjust the companys income statement to a cash basis using the direct method for Year 2 we need to convert each item on the income statement from an accrual basis which recognizes revenues when the... View the full answer