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Mary Walker, president of Rusco Company, considers $46,000 to be the minimum cash balance for operating purposes. As can be seen from the following
Mary Walker, president of Rusco Company, considers $46,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $41,000 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 This Year Last Year Assets Current assets: 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 $ 41,000 $ 64,200 243,800 256,400 273,400 25,200 211,600 46,200 596,000 565,800 168,000 250,000 912,000 776,000 223,000 197,800 689,000 578,200 $ 1,453,000 $ 1,394,000 $ 258,600 10,600 $ 180,200 20,200 62,800 52,000 332,000 252,400 278,000 152,000 610,000 404,400 800,000 730,000 43,000 259,600 989,600 843,000 $ 1,453,000 $ 1,394,000 Rusco Company Income Statement For This Year Ended July 31 Sales Cost of goods sold $ 1,320,000 825,000 Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments Loss on sale of equipment Income before taxes Income taxes Net income 495,000 353,100 141,900 $ 33,000 (11,200) The following additional information is available for this year. a. The company paid a cash dividend. 21,800 163,700 48,980 $ 114,720 b. Equipment costing $142,000 with accumulated depreciation of $66,000 was sold for $64,800. c. Long-term investments costing $82,000 were sold for $115,000. 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 0 $ 0 Required 2 > 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 0 0 0 $ 0 Required 3 > 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 < Required 2 Required 3 >
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