Sales $ 711,000
Cost of goods sold 59,000
Gross margin 652,000
Selling and administrative expenses 151,800
Net operating income 500,200
Nonoperating items:
Gain on sale of equipment 8,000
Income before taxes 508,200
Income taxes 203,280
Net income $ 304,920
Its balance sheet amounts at the end of Years 1 and 2 are as follows:
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
Total current liabilities
Bonds payable
Total liabilities
Common stock
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
Year 2
Year 1
$ 311,720
$ 58,600
225,000
133,000
318,000
286,000
10,000
20,000
864,720
497,600
622,000
510,000
166,200
131,700
455,800
378,300
45,000
0
$ 1,365,520
$ 875,900
$ 317,000
$ 260,000
46,000
52,000
84,500
80,900
447,500
392,900
208,000
110,000
655,500
502,900
343,000
276,000
367,020
97,000
710,020
373,000
$ 1,365,520
$ 875,900
Equipment that had cost $31,300 and on which there was accumulated depreciation of $11,600 was sold during Year 2 for $27,700.
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/used in operating activities for Year 2.
2. Prepare a statement of cash flows for Year 2.
3. Compute the free cash flow for Year 2.
