Joyner Company's income statement for Year 2 follows: $ 713,000 Cost of goods sold 398,000 Gross margin 315,000 Selling and administrative expenses 151,700 Net operating income 163,300 Nonoperating items: Gain on sale of equipment Income before taxes Sales Income taxes Net income $ 103,380 Its balance sheet amounts at the end of Years 1 and 2 are as follows: 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 Income taxes payable Total current liabilities 9,000 Total assets Liabilities and Stockholders' Equity Accounts payable Accrued liabilities Bonds payable Total liabilities 172,300 68,920 Common stock Retained earnings $ 94,480 224,000 318,000 10,500 646,980 624,000 167,000 457,000 47,000 $1,150,980 $ 313,000 47,000 84,600 444,600 205,000 649,600 $ 79,000 167,380 135,000 280,000 21,000 515,000 504,000 131,500 372,500 0 $ 887,500 $ 267,000 56,000 80,500 403,500 114,000 517,500 334,000 275,000 95,000 Total stockholders' equity 501,380 Total liabilities and stockholders' equity $1,150,980 $887,500 Equipment that had cost $31,700 and on which there was accumulated depreciation of $11,100 was sold during Year 2 for $29,600. 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. 370,000
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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