Mary Walker, president of Rusco Company, considers $25,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $20,000 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 YearLast YearAssets Current assets: Cash$ 20,000$ 39,000Accounts Receivable227,000216,500Inventory254,500199,000Prepaid expenses10,50021,000Total current assets512,000475,500Long-term investments105,000145,000Plant and equipment870,000755,000Less accumulated depreciation212,500191,500Net plant and equipment657,500563,500Total assets$ 1,274,500$ 1,184,000Liabilities and Stockholders' Equity Current liabilities: Accounts payable$ 235,500$ 176,000Accrued liabilities8,50016,000Income taxes payable46,00041,500Total current liabilities290,000233,500Bonds Payable215,000110,000Total liabilities505,000343,500Stockholders equity: Common stock642,500625,000Retained earnings127,000215,500Total stockholders' equity769,500840,500Total liabilities and stockholders' equity$ 1,274,500$ 1,184,000

Rusco Company Income Statement For This Year Ended July 31Sales $ 900,000Cost of goods sold 562,500Gross margin 337,500Selling and administrative expenses 240,750Net operating income 96,750Nonoperating items: Gain on sale of investments$ 22,500 Loss on sale of equipment(7,000)15,500Income before taxes 112,250Income taxes 33,650Net income $ 78,600

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 $48,000. The equipment originally cost $100,000 and had accumulated depreciation of $45,000.
3. Long-term investments that cost $40,000 were sold during the year for $62,500.
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.