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Mary Walker, president of Rusco Company, considers $22,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements,

Mary Walker, president of Rusco Company, considers $22,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $17,000 in cash was available 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 $ 17,000 $ 35,400
Accounts Receivable 222,800 212,600
Inventory 251,800 197,200
Prepaid expenses 8,400 17,400
Total current assets 500,000 462,600
Long-term investments 96,000 130,000
Plant and equipment 864,000 752,000
Less accumulated depreciation 211,000 190,600
Net plant and equipment 653,000 561,400
Total assets $ 1,249,000 $ 1,154,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 232,200 $ 175,400
Accrued liabilities 8,200 15,400
Income taxes payable 43,600 40,000
Total current liabilities 284,000 230,800
Bonds Payable 206,000 104,000
Total liabilities 490,000 334,800
Stockholders equity:
Common stock 620,000 610,000
Retained earnings 139,000 209,200
Total stockholders' equity 759,000 819,200
Total liabilities and stockholders' equity $ 1,249,000 $ 1,154,000

Rusco Company Income Statement For This Year Ended July 31
Sales $ 840,000
Cost of goods sold 525,000
Gross margin 315,000
Selling and administrative expenses 224,700
Net operating income 90,300
Nonoperating items:
Gain on sale of investments $ 21,000
Loss on sale of equipment (6,400 ) 14,600
Income before taxes 104,900
Income taxes 31,460
Net income $ 73,440

The following additional information is available for this year.

  1. The company declared and paid a cash dividend.
  2. Equipment was sold during the year for $45,600. The equipment originally cost $94,000 and had accumulated depreciation of $42,000.
  3. Long-term investments that cost $34,000 were sold during the year for $55,000.
  4. 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/used in operating activities for this year.

2. Prepare a statement of cash flows for this year.

3. Compute free cash flow for this year.

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