Mary Walker, president of Rusco Company, considers $39,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $34,000 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	$ 34,000	$ 55,800
Accounts Receivable	246,600	234,700
Inventory	267,100	207,400
Prepaid expenses	20,300	37,800
Total current assets	568,000	535,700
Long-term investments	147,000	215,000
Plant and equipment	898,000	769,000
Less accumulated depreciation	219,500	195,700
Net plant and equipment	678,500	573,300
Total assets	$ 1,393,500	$ 1,324,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 250,900	$ 178,800
Accrued liabilities	9,900	18,800
Income taxes payable	57,200	48,500
Total current liabilities	318,000	246,100
Bonds Payable	257,000	138,000
Total liabilities	575,000	384,100
Stockholders equity:
Common stock	747,500	695,000
Retained earnings	71,000	244,900
Total stockholders' equity	818,500	939,900
Total liabilities and stockholders' equity	$ 1,393,500	$ 1,324,000

Rusco Company Income Statement For This Year Ended July 31
Sales		$ 1,180,000
Cost of goods sold		737,500
Gross margin		442,500
Selling and administrative expenses		315,650
Net operating income		126,850
Nonoperating items:
Gain on sale of investments	$ 29,500
Loss on sale of equipment	(9,800)	19,700
Income before taxes		146,550
Income taxes		43,870
Net income		$ 102,680

The following additional information is available for this year.

The company declared and paid a cash dividend.

Equipment was sold during the year for $59,200. The equipment originally cost $128,000 and had accumulated depreciation of $59,000.

Long-term investments that cost $68,000 were sold during the year for $97,500.

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.

Rusco Company
Statement of Cash FlowsIndirect Method (partial)

Decrease in accounts payable

Decrease in accounts receivable

Decrease in accrued liabilities

Decrease in income taxes payable

Decrease in inventory

Decrease in prepaid expenses

Depreciation

Gain on sale of investments

Increase in accounts payable

Increase in accounts receivable

Increase in accrued liabilities

Increase in income taxes payable

Increase in inventory

Increase in prepaid expenses

Loss on sale of equipment

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

Additions to plant and equipment

Cash dividends paid

Decrease in accounts payable

Decrease in accounts receivable

Decrease in accrued liabilities

Decrease in income taxes payable

Decrease in inventory

Decrease in prepaid expenses

Depreciation

Gain on sale of equipment

Gain on sale of investments

Increase in accounts payable

Increase in accounts receivable

Increase in accrued liabilities

Increase in income taxes payable

Increase in inventory

Increase in prepaid expenses

Issuance of bonds payable

Issuance of common stock

Loss on sale of equipment

Loss on sale of investments

Proceeds from sale of equipment

Proceeds from sale of long-term investments

Retirement of bonds payable