# "Problem 14-10 Prepare a Statement of Cash Flows; Free Cash Flow" Chapter 14

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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.

 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.

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