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. 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 Income Statement Rusco Company For This Year Ended July 31 Statement of Cash Flows-Indirect Method (partial) Rusco Company Sales $1,320,000 825,000 495,000 353,100 141,900 Comparative Balance Sheet at July 31 Cost of goods sold Gross margin Net income Last Year This Year Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments Adjustments to convert net income to a cash basis: Current assets : 41,000 256, 400 273, 400 25,200 596,000 168,000 912,000 223,000 689,000 64,200 243,800 211, 600 46,200 565,B00 250,000 776,000 197,800 578,200 33,000 Depreciation Accounts Receivable 21,800 163,700 48,980 114,720 (11,200) Inventory Income before taxes Prepaid Increase in accounts receivable Income taxes Total current assets Long-term investments Increase in inventory Less accumulated depreciation Net plant and equipment Decrease in pre paid expenses The following additional information is available for this year. $1,453,000 $1,394,000 Increase in accounts payable Liabilities and Stockholders' Equity Current liabilities: a. The company declared and paid a cash dividend. b. Equipment was sold during the year for $64,800. The equipment originally cost $142,000 and had accumulated depreciation of $66,000. c. Long-term investments that cost $82,000 were sold during the year for $115,000. d. The company did not retire any bonds payable or repurchase any of its common stock. Decrease in accrued liabilities Accounts payable $ 258, 600 180,200 20,200 52,000 252, 400 152,000 404, 400 Accrued liabilities 10,600 Increase in income taxes payable 62,800 332,000 278,000 610,000 Income taxes payable Total current 1iabilities Bonds Payable Loss on sale of equipment Total liabilities Stockholders' equity Gain on sale of investments 800,000 730,000 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. Retained earnings Total stockholders equity Total liabilities and stockholders equity 259,600 989, 600 843,000 0 $1, 453,000 $1,394,000 Net cash used in operating activities $ 0 Rusco Company Statement of Cash Flows For This Year Ended July 31 Operating activities: Net cash provided by operating activities Investing activities: Proceeds from sale of long-term investments Proceeds from sale of equipment Additions to plant and equipment Net cash used in financing activities Financing activities: Issuance of bonds payable 0 Issuance of common stock Cash dividends paid Net cash used in financing activities Net decrease in cash 0 Beginning cash and cash equivalents Ending cash and cash equivalents Free cash flow 0
