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Mary Walker, president of Rusco Company, considers $41,000 to be the minimum cash balance for operating purposes. As can be seen from the following
Mary Walker, president of Rusco Company, considers $41,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $36,000 in cash was available at the end of this year. Because 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 Assets Current assets: This Year Last Year Cash and cash equivalents Accounts Receivable Inventory Prepaid expenses Total current assets Long-term investments Plant and equipment Less accumulated depreciation Net plant and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Income taxes payable Total current liabilities Bonds Payable Total liabilities Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 36,000 $ 58,200 249,400 237,300 208,600 268,900 21,700 40,200 576,000 544,300 153,000 225,000 902,000 771,000 220,500 196,300 681,500 574,700 $ 1,410,500 $ 1,344,000 $ 253,100 10,100 $ 179,200 19,200 58,800 49,500 322,000 247,900 263,000 142,000 585,000 389,900 762,500 705,000 63,000 249,100 825,500 954,100 $ 1,344,000 $ 1,410,500 Rusco Company Income Statement For This Year Ended July 31 Sales $ 1,220,000 Cost of goods sold 762,500 Net operating income Gross margin Selling and administrative expenses Nonoperating items: Gain on sale of investments Loss on sale of equipment Income before taxes Income taxes Net income 457,500 326,350 131,150 $ 30,500 (10,200) 20,300 151,450 45,330 $ 106,120 The following additional information is available for this year. a. The company paid a cash dividend. b. Equipment costing $132,000 with accumulated depreciation of $61,000 was sold for $60,800. c. Long-term investments costing $72,000 were sold for $102,500. d. The company did not retire any bonds payable or repurchase any of its common stock. Required: For this year: 1. Determine the net cash provided by (used in) operating activities using the indirect method. 2. Prepare a statement of cash flows. 3. Compute free cash flow. Required 1 Required 2 Required 3 Determine the net cash provided by (used in) operating activities using the indirect method for this year. Note: Cash outflows and amounts to be deducted should be indicated with a minus sign. Rusco Company Statement of Cash Flows-Indirect Method (partial) Required 1 Required 2 Required 3 Prepare a statement of cash flows for this year. Note: Cash outflows and amounts to be deducted should be indicated with a minus sign. 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 Required 1 Required 2 Required 3 Compute free cash flow for this year. Note: Negative amount should be indicated by a minus sign. Free cash flow
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