Pillsberry Company’s income statement for Year 2 follows: Pillsberry Company Inc
ID: 2467204 • Letter: P
Question
Pillsberry Company’s income statement for Year 2 follows:
Pillsberry Company
Income Statement
Sales
$
710,000
Cost of goods sold
309,000
Gross margin
401,000
Selling and administrative expenses
217,000
Net operating income
184,000
Gain on sale of equipment
6,000
Income before taxes
190,000
Income taxes
76,000
Net income
$
114,000
Its balance sheet amounts at the end of Years 1 and 2 are as follows:
Pillsberry Company
Balance Sheet
Year 2
Year 1
Assets
Cash
$
47,400
$
88,500
Accounts receivable
279,000
122,000
Inventory
318,000
273,000
Prepaid expenses
8,500
17,000
Total current assets
652,900
500,500
Plant and equipment
631,000
502,000
Accumulated depreciation
166,300
130,900
Net plant and equipment
464,700
371,100
Loan to Puffington Company
44,000
Total assets
$
1,161,600
$
871,600
Liabilities and Stockholders' equity
Accounts payable
$
318,000
$
253,000
Accrued liabilities
47,000
54,000
Income taxes payable
85,500
81,600
Total current liabilities
450,500
388,600
Bonds payable
209,000
108,000
Total liabilities
659,500
496,600
Common stock
332,000
286,000
Retained earnings
170,100
89,000
Total stockholders' equity
502,100
375,000
Total liabilities and stockholders' equity
$
1,161,600
$
871,600
Equipment that had cost $31,300 and on which there was accumulated depreciation of $11,100 was sold during Year 2 for $26,200. 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. (Negative amount should be indicated by a minus sign.)
2.
Prepare a statement of cash flows for Year 2. (Amounts to be deducted and negative amounts should be indicated with a minus sign.)
3.
Compute the free cash flow for Year 2. (Negative amount should be indicated by a minus sign.)
Pillsberry Company’s income statement for Year 2 follows:
Explanation / Answer
1
Calculation of Net cash provided by operating activities:
Net Income
$ 114,000.00
Less: Gain on sale of Equipment
$ (6,000.00)
Add: Depreciation (166300-130900)+11100
$ 46,500.00
Less: Increase in accounts receivables (279000-122000)
$ (157,000.00)
Less: Increase in Inventory (318000-273000)
$ (45,000.00)
Add: Decrease in Preapid Expense (17000-8500)
$ 8,500.00
Add: Increase in Total Current Liabilities (450500-388600)
$ 61,900.00
Net cash provided by operating activities
$ 22,900.00
2
Statement of Cash Flows:
Cash Flow from Operating Activities:
Net Income
$ 114,000.00
Less: Gain on sale of Equipment
$ (6,000.00)
Add: Depreciation (166300-130900)+11100
$ 46,500.00
Less: Increase in accounts receivables (279000-122000)
$ (157,000.00)
Less: Increase in Inventory (318000-273000)
$ (45,000.00)
Add: Decrease in Preapid Expense (17000-8500)
$ 8,500.00
Add: Increase in Total Current Liabilities (450500-388600)
$ 61,900.00
Net cash provided by operating activities
$ 22,900.00
Cash Flow from Investing Activities:
Plant Purchased (631000 - 502000)+31300
$ (160,300.00)
Sale of Equipment
$ 26,200.00
Loan given
$ (44,000.00)
$ (178,100.00)
Cash Flow from Financing Activities:
Bonds Issued (209000-108000)
$ 101,000.00
Common Stock Issued (332000-286000)
$ 46,000.00
Cash Dividend Paid (89000+114000-170100)
$ (32,900.00)
$ 114,100.00
Net Cash Flows
$ (41,100.00)
Cash beginning Balance
$ 88,500.00
Cash Ending Balance
$ 47,400.00
3
Calculation of Free Cash Flows:
Net cash provided by operating activities
$ 22,900.00
Less: Capital Investments
$ (160,300.00)
Free Cash Flows
$ (137,400.00)
1
Calculation of Net cash provided by operating activities:
Net Income
$ 114,000.00
Less: Gain on sale of Equipment
$ (6,000.00)
Add: Depreciation (166300-130900)+11100
$ 46,500.00
Less: Increase in accounts receivables (279000-122000)
$ (157,000.00)
Less: Increase in Inventory (318000-273000)
$ (45,000.00)
Add: Decrease in Preapid Expense (17000-8500)
$ 8,500.00
Add: Increase in Total Current Liabilities (450500-388600)
$ 61,900.00
Net cash provided by operating activities
$ 22,900.00
2
Statement of Cash Flows:
Cash Flow from Operating Activities:
Net Income
$ 114,000.00
Less: Gain on sale of Equipment
$ (6,000.00)
Add: Depreciation (166300-130900)+11100
$ 46,500.00
Less: Increase in accounts receivables (279000-122000)
$ (157,000.00)
Less: Increase in Inventory (318000-273000)
$ (45,000.00)
Add: Decrease in Preapid Expense (17000-8500)
$ 8,500.00
Add: Increase in Total Current Liabilities (450500-388600)
$ 61,900.00
Net cash provided by operating activities
$ 22,900.00
Cash Flow from Investing Activities:
Plant Purchased (631000 - 502000)+31300
$ (160,300.00)
Sale of Equipment
$ 26,200.00
Loan given
$ (44,000.00)
$ (178,100.00)
Cash Flow from Financing Activities:
Bonds Issued (209000-108000)
$ 101,000.00
Common Stock Issued (332000-286000)
$ 46,000.00
Cash Dividend Paid (89000+114000-170100)
$ (32,900.00)
$ 114,100.00
Net Cash Flows
$ (41,100.00)
Cash beginning Balance
$ 88,500.00
Cash Ending Balance
$ 47,400.00
3
Calculation of Free Cash Flows:
Net cash provided by operating activities
$ 22,900.00
Less: Capital Investments
$ (160,300.00)
Free Cash Flows
$ (137,400.00)