Question
Mary Walker, president of Rusco Company, considers $44,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements,
Mary Walker, president of Rusco Company, considers $44,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $39,000 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 | $ | 39,000 | $ | 61,800 | |
Accounts receivable | 228,800 | 241,200 | |||
Inventory | 271,600 | 210,400 | |||
Prepaid expenses | 23,800 | 43,800 | |||
Total current assets | 563,200 | 557,200 | |||
Long-term investments | 162,000 | 240,000 | |||
Plant and equipment | 908,000 | 774,000 | |||
Less accumulated depreciation | 222,000 | 197,200 | |||
Net plant and equipment | 686,000 | 576,800 | |||
Total assets | $ | 1,411,200 | $ | 1,374,000 | |
Liabilities and Stockholders' Equity | |||||
Current liabilities: | |||||
Accounts payable | $ | 196,600 | $ | 256,400 | |
Accrued liabilities | 10,400 | 19,800 | |||
Income taxes payable | 61,200 | 51,000 | |||
Total current liabilities | 268,200 | 327,200 | |||
Bonds payable | 272,000 | 128,000 | |||
Total liabilities | 540,200 | 455,200 | |||
Stockholders equity: | |||||
Common stock | 742,800 | 720,000 | |||
Retained earnings | 128,200 | 198,800 | |||
Total stockholders' equity | 871,000 | 918,800 | |||
Total liabilities and stockholders' equity | $ | 1,411,200 | $ | 1,374,000 | |
Rusco Company Income Statement For This Year Ended July 31 | ||||||
Sales | $ | 1,280,000 | ||||
Cost of goods sold | 800,000 | |||||
Gross margin | 480,000 | |||||
Selling and administrative expenses | 342,400 | |||||
Net operating income | 137,600 | |||||
Nonoperating items: | ||||||
Gain on sale of investments | $ | 32,000 | ||||
Loss on sale of equipment | (10,800 | ) | 21,200 | |||
Income before taxes | 158,800 | |||||
Income taxes | 47,520 | |||||
Net income | $ | 111,280 | ||||
The following additional information is available for this year.
- The company declared and paid a cash dividend.
-
Equipment was sold during the year for $63,200. The equipment originally cost $138,000 and had accumulated depreciation of $64,000.
-
Long-term investments that cost $78,000 were sold during the year for $110,000.
-
The company did not retire any bonds payable or repurchase any of its common stock.
Because the Cash account decreased so dramatically during this year, the companys executive committee is anxious to see how the income statement would appear on a cash basis.
Required:
1. Using the direct method, adjust the companys income statement for this year to a cash basis.
2. Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for this year.
Apex Company prepared the statement of cash flows for the current year that is shown below:
Apex Company Statement of Cash FlowsIndirect Method | ||||||
Operating activities: | ||||||
Net income | $ | 40,700 | ||||
Adjustments to convert net income to cash basis: | ||||||
Depreciation | $ | 21,200 | ||||
Increase in accounts receivable | (62,000 | ) | ||||
Increase in inventory | (26,000 | ) | ||||
Decrease in prepaid expenses | 11,000 | |||||
Increase in accounts payable | 54,800 | |||||
Decrease in accrued liabilities | (10,900 | ) | ||||
Increase in income taxes payable | 4,300 | (7,600 | ) | |||
Net cash provided by (used in) operating activities | 33,100 | |||||
Investing activities: | ||||||
Proceeds from the sale of equipment | 15,200 | |||||
Loan to Thomas Company | (40,900 | ) | ||||
Additions to plant and equipment | (120,300 | ) | ||||
Net cash provided by (used in) investing activities | (146,000 | ) | ||||
Financing activities: | ||||||
Increase in bonds payable | 88,700 | |||||
Increase in common stock | 39,200 | |||||
Cash dividends | (28,400 | ) | ||||
Net cash provided by (used in) financing activities | 99,500 | |||||
Net decrease in cash and cash equivalents | (13,400 | ) | ||||
Beginning cash and cash equivalents | 28,400 | |||||
Ending cash and cash equivalents | $ | 15,000 | ||||
Required:
Compute Apex Companys free cash flow for the current year. (Negative amount should be indicated by a minus sign.)
For the just completed year, Hanna Company had net income of $46,000. Balances in the companys current asset and current liability accounts at the beginning and end of the year were as follows:
December 31 | ||||
End of Year | Beginning of Year | |||
Current assets: | ||||
Cash and cash equivalents | $ | 60,000 | $ | 79,000 |
Accounts receivable | $ | 162,000 | $ | 190,000 |
Inventory | $ | 430,000 | $ | 361,000 |
Prepaid expenses | $ | 12,500 | $ | 13,500 |
Current liabilities: | ||||
Accounts payable | $ | 360,000 | $ | 382,000 |
Accrued liabilities | $ | 8,000 | $ | 13,000 |
Income taxes payable | $ | 36,000 | $ | 25,000 |
The Accumulated Depreciation account had total credits of $50,000 during the year. Hanna Company did not record any gains or losses during the year.
Required:
Using the indirect method, determine the net cash provided by operating activities for the year. (List any deduction in cash and cash outflows as negative amounts.)
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