LO15-2, LO15-3 Mary Walker, president of Rusco Company, 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 avail- able at the end of this year. 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. Rusco Company Comparative Balance Sheet at July 31 This Year Last Year Assets Current assets: Cash and cash equivalents. Accounts receivable Inventory Prepaid expenses Total current assets Long-term investments Plant and equipment Less accumulated depreciation Net plant and equipment Total assets $ 8.000 120,000 140,000 5.000 273.000 50,000 430.000 60.000 370.000 $693,000 $ 21,000 80,000 90,000 9,000 200.000 70,000 300,000 50,000 250.000 $520,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable... Accrued liabilities Income taxes payable Total current liabilities Bonds payable Total liabilities Stockholders' equity Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $123,000 8,000 20,000 151.000 70.000 221,000 $ 60,000 17,000 12.000 89,000 89,000 366,000 106.000 472.000 $693.000 346,000 85.000 431.000 $520,000 Rusco Company Income Statement For This Year Ended July 31 Sales Cost of goods sold Gross margin..... Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments Loss on sale of equipment Income before taxes Income taxes Net income $500,000 300,000 200,000 158,000 42,000 $10,000 (2.000) 8,000 50,000 20,000 $ 30,000 Statement of Cash Flows The following additional information is available for this year. a. The company declared and paid a cash dividend. b. Equipment was sold during the year for $8,000. The equipment originally cost $20,000 and had accumulated depreciation of S10,000. c. Long-term investments that cost $20,000 were sold during the year for $30,000. d. The company did not retire any bonds payable or repurchase any of its common stock. Required: 1. Using the indirect method, compute the net cash provided by operating activities for this year. 2. Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for this year. 3. Compute free cash flow for this year. 4. Explain the major reasons for the decline in the company's cash balance