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Mary Walker, president of Rusco Company, considers $32,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements,

Mary Walker, president of Rusco Company, considers $32,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $27,000 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 $ 27,000 $ 47,400
Accounts Receivable 236,800 225,600
Inventory 260,800 203,200
Prepaid expenses 15,400 29,400
Total current assets 540,000 505,600
Long-term investments 126,000 180,000
Plant and equipment 884,000 762,000
Less accumulated depreciation 216,000 193,600
Net plant and equipment 668,000 568,400
Total assets $ 1,334,000 $ 1,254,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 243,200 $ 177,400
Accrued liabilities 9,200 17,400
Income taxes payable 51,600 45,000
Total current liabilities 304,000 239,800
Bonds Payable 236,000 124,000
Total liabilities 540,000 363,800
Stockholders equity:
Common stock 695,000 660,000
Retained earnings 99,000 230,200
Total stockholders' equity 794,000 890,200
Total liabilities and stockholders' equity $ 1,334,000 $ 1,254,000

Rusco Company Income Statement For This Year Ended July 31
Sales $ 1,040,000
Cost of goods sold 650,000
Gross margin 390,000
Selling and administrative expenses 278,200
Net operating income 111,800
Nonoperating items:
Gain on sale of investments $ 26,000
Loss on sale of equipment (8,400 ) 17,600
Income before taxes 129,400
Income taxes 38,760
Net income $ 90,640

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 $53,600. The equipment originally cost $114,000 and had accumulated depreciation of $52,000.
  3. Long-term investments that cost $54,000 were sold during the year for $80,000.
  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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Using the indirect method, compute the net cash provided by/used in operating activities for this year. (List any deduction in cash and cash outflows as negative amounts.) Rusco Company Statement of Cash Flows-Indirect Method (partial) Prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.) Rusco Company Statement of Cash Flows For This Year Ended July 31 Operating activities Investing activities Financing activities Beginning cash and cash equivalents Ending cash and cash equivalents Compute free cash flow for this year. (Negative amount should be indicated by a minus sign.) Free cash flow

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