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| 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. |