Mary Walker, president of Rusco Products, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of 2009. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker.

The following additional information is available for the year 2009.

1. Dividends totaling $9,000 were declared and paid in cash.
2. Equipment was sold during the year for $8,000. The equipment had originally cost $20,000 and had accumulated depreciation of $10,000.
3. The decrease in the Preferred Stock account is the result of a conversion of preferred stock into an equal dollar amount of common stock.
4. Long-term investments that had cost $20,000 were sold during the year for $30,000.

Required:

1. Using the indirect method, compute the net cash provided by operating activities for 2009.
2. Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for 2009.
3. Compute free cash flow for 2009.
4. Explain the major reasons for the decline in the company’s cash balance.

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Rusco Products Comparative Balance Sheet July 31, 2009 and 2008 2009 2008 Assets Current assets: $ 8,000 $ 21,000 80,000 Cash Accounts receivable. Inventory Prepaid expenses 120,000 140,000 90,000 5,000 9,000 Total current assets 200,000 273,000 Long-term investments 50,000 70,000 Plant and equipment ... Less accumulated depreciation. 430,000 60,000 300,000 50,000 Net plant and equipment... 250,000 370,000 Total assets. $693,000 $520,000 Liabilities and Stockholders' Equity Current liabilities: $ 60,000 Accounts payable. $123,000 Accrued liabilities. 8,000 17,000 Total current liabilities 131,000 77,000 Bonds payable... Deferred income taxes. 70,000 20,000 12,000 Total liabilities 221,000 89,000 Stockholders' equity: Preferred stock 96,000 80,000 Common stock 286,000 250,000 Retained earnings 106,000 85,000 Total stockholders' equity 431,000 472,000 Total liabilities and stockholders' equity.. S693,000 $520,000