Sharon Feldman, president of Allied Company, considers $20,000 to be a minimum cash balance for operating purposes. As can be seen from the following statements, only $15,000 in cash was available at the end of 2011. Because the company reported a large net income for the year, and also issued bonds and sold some long-term investments, the sharp decline in cash is puzzling to Ms. Feldman.

The following additional information is available for the year 2011:
a. The company sold long-term investments with an original cost of $30,000 for $50,000 during the year.
b. Equipment that had cost $90,000 and on which there was $40,000 in accumulated depreciation was sold during the year for $44,000.
c. The company declared and paid a cash dividend during the year.
d. The stock of a dissident stockholder was repurchased for cash and retired during the year. No issues of stock were made.
e. The company did not retire any bonds during the year.

Required:
1. Using the indirect method, compute the net cash provided by operating activities for 2011.
2. Prepare a statement of cash flows for 2011.
3. Compute free cash flow for 2011.
4. Explain the major reasons for the decline in the company€™s cashbalance.

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Allied Company Comparative Balance Sheet December 31, 2011, and 2010 2011 2010 Assets Current assets Cash S 15,000 $33,000 200,000 210,000 196,000 15,000 472,000 454,000 120,000 860,000 750,000 210,000 190,000 560,000 $1,212,000 $1,134,000 Accounts receivable Inventory 250,000 7,000 Prepaid expenses Long-term investments Plant and equipment 90.000 Less accumulated depreciation Net plant and equipment Total assets 650,000 Liablities and Stockholders' Equity Current liabilities: S 175,000 230,000 Accounts payable Accrued liabilities 8,000 15,000 39,000 Income taxes payable. Total current liabilities Bonds payable Total liabilities Stockholders' equity: 42,000 225,000 200,000 284,000 100,000 384,000 425,000 5,000 600,000 192,000 150,000 787,000 750,000 Total liabilities and stockholders equity$1,212,000 $1,134,000 Common stock 59 Retained earnings Total stockholders equity Allied Company Income Statement For the Year Ended December 31, 2011 Sales ...- Cost of goods sold Gross margin Selling and administrative expenses Net operating income $800,000 500,000 300,000 214,000 86,000 onoperating items: Gain on sale of investments . Loss on sale of equipment.... $20,000 Income before taxes Income taxes Net income (6,000) 14,000 100,000 30,000 70,000