Question
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,
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 $36,000in cash was available at the end of 2014. 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 July 31, 2014 and 2013 | ||||
2014 | 2013 | |||
Assets | ||||
Current assets: | ||||
Cash | $ | 36,000 | $ | 58,200 |
Accounts Receivable | 225,200 | 237,300 | ||
Inventory | 268,900 | 208,600 | ||
Prepaid expenses | 21,700 | 40,200 | ||
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Total current assets | 551,800 | 544,300 | ||
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Long-term investments | 153,000 | 225,000 | ||
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Plant and equipment | 902,000 | 771,000 | ||
Less accumulated depreciation | 220,500 | 196,300 | ||
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Net plant and equipment | 681,500 | 574,700 | ||
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Total assets | $ | 1,386,300 | $ | 1,344,000 |
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Liabilities and Stockholders' Equity | ||||
Current liabilities: | ||||
Accounts payable | $ | 193,900 | $ | 253,100 |
Accrued liabilities | 10,100 | 19,200 | ||
Income taxes payable | 58,800 | 49,500 | ||
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Total current liabilities | 262,800 | 321,800 | ||
Bonds Payable | 263,000 | 142,000 | ||
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Total liabilities | 525,800 | 463,800 | ||
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Stockholders equity: | ||||
Common stock | 647,500 | 705,000 | ||
Retained earnings | 213,000 | 175,200 | ||
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Total stockholders' equity | 860,500 | 880,200 | ||
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Total liabilities and stockholders' equity | $ | 1,386,300 | $ | 1,344,000 |
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Rusco Company Income Statement For the Year Ended July 31, 2014 | |||
Sales | $ | 1,220,000 | |
Cost of goods sold | 762,500 | ||
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Gross margin | 457,500 | ||
Selling and administrative expenses | 326,350 | ||
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Net operating income | 131,150 | ||
Nonoperating items: | |||
Gain on sale of investments | $30,500 | ||
Loss on sale of equipment | (10,200) | 20,300 | |
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Income before taxes | 151,450 | ||
Income taxes | 45,330 | ||
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Net income | $ | 106,120 | |
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The following additional information is available for the year 2014. |
a. | The company declared and paid a cash dividend. |
b. | Equipment was sold during the year for $60,800. The equipment had originally cost $132,000 and had accumulated depreciation of $61,000. |
c. | Long-term investments that had cost $72,000 were sold during the year for $102,500. |
d. | 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 for operating activities for 2014. (Negative amount should be indicated by a minus sign.) |
2. | Prepare a statement of cash flows for 2014. (List any deduction in cash and cash outflows as negative amounts.) |
3. | Compute free cash flow for 2014. |
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