problem 15-12 prepare a statement of cash flows (indirect method) [LO2, LO3]

Foxboro companys income statement for year 2 follows:

sales.......................................700,000

cost of goods sold..................400,000

gross margin...........................300,000

selling and administrative expenses 216,000

net operating income................84,000

gain on sale of equipment.........6,000

income before taxes..................90,000

income taxes ............................27,000

net income.................................63,000

balance sheet accounts for foxboro cmpany contained the following amounts at the end of years 1 and 2

year 2 year 1

debit balance accounts

cash.....................................................................................................11,000...............................19,000

accounts receivable............................................................................250,000..............................180,000

inventory..............................................................................................318,000.............................270,000

prepaid expenses.................................................................................7,000................................16,000

loan to harker company........................................................................40,000...........................

plant and equipment............................................................................620,000............................500,000

total debits...........................................................................................1,246,000..........................985,000

credit balance accounts

accumulated depreciation....................................................................165,000.............................130,000

accounts payable..................................................................................310,000.............................260,000

accrued liabilities...................................................................................42,000..............................50,000

bonds payable......................................................................................190,000.............................100,000

deferred income taxes..........................................................................84,000...............................80,000

common stock.....................................................................................335,000...............................275,000

retained earning...................................................................................120,000.............................90,000

total credits...........................................................................................1,246,000..............................985,000

equipment that had cost 30,000 and on which there was accumulated depreciation of 10,000 was sold during year 2 for 26,000. cash dividends totaling 33,000 were declared and paid during year 2

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. briefly explain why cash declined so sharply during the year