Mary Walker, president of Rusco Products, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of 2015. 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 Products Comparative Balance Sheet December 31, 2015 and 2014

	2015	2014
Assets
Current assets:
Cash	$ 8,000	$ 21,000
Accounts Receivable	120,000	80,000
Merchandise Inventory	140,000	90,000
Prepaid expenses	5,000	9,000
Total current assets	273,000	200,000
Long-term investments	50,000	70,000
Plant and equipment:	430,000	300,000
Less accumulated depreciation	(60,000)	(50,000)
Net plant and equipment	370,000	250,000
Total assets	$693,000	$520,000
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable	$123,000	$60,000
Accrued liabilities	8,000	17,000
Total current liabilities	131,000	77,000
Bonds Payable	70,000	0
Deferred income taxes	20,000	12,000
Total liabilities	$221,000	$89,000
Stockholders Equity:
Preferred stock	80,000	96,000
Common stock	286,000	250,000
Retained earnings	106,000	85,000
Total stockholders equity	472,000	431,000
Total liabilities & stockholders equity	$693,000	$520,000

Rusco Products Income Statement For the year ended December 31, 2015

Sales		$500,000
Cost of goods sold		300,000
Gross profit		200,000
Selling and administrative expenses		158,000
Net operating income		42,000
Other income and (expense)
Gain on sale of investments	$10,000
Loss on sale of equipment	(2,000)	8,000
Income before taxes		50,000
Income taxes		20,000
Net Income		$30,000

The following additional information is available for the year 2015. a. Dividends totaling $9,000 were declared and paid in cash. b. Equipment was sold during the year for $8,000. The equipment had originally cost $20,000 and had accumulated depreciation of $10,000. c. The decrease in the Preferred Stock account is the result or a conversion of preferred stock into an equal dollar amount of common stock. d. Long-term investments that had cost $20,000 were sold during the year for $30,000.

Required:

1.Using the Indirect Method prepare Rusco Products statement of cash flows for 2015 in Excel. Show your computations on a separate sheet of paper.

2.Compute free cash flow for 2015

3.Explain the major reasons for the decline in the companys cash balance.