Question
Mary Walker, president of Rusco Company, considers $27,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements,
Mary Walker, president of Rusco Company, considers $27,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $22,000 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 and cash equivalents | $ | 22,000 | $ | 41,400 | |
Accounts receivable | 229,800 | 219,100 | |||
Inventory | 256,300 | 200,200 | |||
Prepaid expenses | 11,900 | 23,400 | |||
Total current assets | 520,000 | 484,100 | |||
Long-term investments | 111,000 | 155,000 | |||
Plant and equipment | 874,000 | 757,000 | |||
Less accumulated depreciation | 213,500 | 192,100 | |||
Net plant and equipment | 660,500 | 564,900 | |||
Total assets | $ | 1,291,500 | $ | 1,204,000 | |
Liabilities and Stockholders' Equity | |||||
Current liabilities: | |||||
Accounts payable | $ | 237,700 | $ | 176,400 | |
Accrued liabilities | 8,700 | 16,400 | |||
Income taxes payable | 47,600 | 42,500 | |||
Total current liabilities | 294,000 | 235,300 | |||
Bonds Payable | 221,000 | 114,000 | |||
Total liabilities | 515,000 | 349,300 | |||
Stockholders equity: | |||||
Common stock | 657,500 | 635,000 | |||
Retained earnings | 119,000 | 219,700 | |||
Total stockholders' equity | 776,500 | 854,700 | |||
Total liabilities and stockholders' equity | $ | 1,291,500 | $ | 1,204,000 | |
Rusco Company Income Statement For This Year Ended July 31 | ||||||
Sales | $ | 940,000 | ||||
Cost of goods sold | 587,500 | |||||
Gross margin | 352,500 | |||||
Selling and administrative expenses | 251,450 | |||||
Net operating income | 101,050 | |||||
Nonoperating items: | ||||||
Gain on sale of investments | $ | 23,500 | ||||
Loss on sale of equipment | (7,400 | ) | 16,100 | |||
Income before taxes | 117,150 | |||||
Income taxes | 35,110 | |||||
Net income | $ | 82,040 | ||||
The following additional information is available for this year.
- The company declared and paid a cash dividend.
- Equipment was sold during the year for $49,600. The equipment originally cost $104,000 and had accumulated depreciation of $47,000.
- Long-term investments that cost $44,000 were sold during the year for $67,500.
- 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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