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Problem 13-13 Prepare and Interpret a Statement of Cash Flows; Free Cash Flow [LO13-1, LO13-2, LO13-3] Mary Walker, president of Rusco Company, considers $40,000 to

Problem 13-13 Prepare and Interpret a Statement of Cash Flows; Free Cash Flow [LO13-1, LO13-2, LO13-3]

Mary Walker, president of Rusco Company, considers $40,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $35,000 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 $ 35,000 $ 57,000
Accounts receivable 248,000 236,000
Inventory 268,000 208,000
Prepaid expenses 21,000 39,000
Total current assets 572,000 540,000
Long-term investments 150,000 220,000
Plant and equipment 900,000 770,000
Less accumulated depreciation 220,000 196,000
Net plant and equipment 680,000 574,000
Total assets $ 1,402,000 $ 1,334,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 252,000 $ 179,000
Accrued liabilities 10,000 19,000
Income taxes payable 58,000 49,000
Total current liabilities 320,000 247,000
Bonds Payable 260,000 140,000
Total liabilities 580,000 387,000
Stockholders equity:
Common stock 755,000 700,000
Retained earnings 67,000 247,000
Total stockholders' equity 822,000 947,000
Total liabilities and stockholders' equity $ 1,402,000 $ 1,334,000

Rusco Company Income Statement For This Year Ended July 31
Sales $ 1,200,000
Cost of goods sold 750,000
Gross margin 450,000
Selling and administrative expenses 321,000
Net operating income 129,000
Nonoperating items:
Gain on sale of investments $ 30,000
Loss on sale of equipment (10,000 ) 20,000
Income before taxes 149,000
Income taxes 44,600
Net income $ 104,400

The following additional information is available for this year.

  1. The company declared and paid a cash dividend.
  2. Equipment was sold during the year for $60,000. The equipment originally cost $130,000 and had accumulated depreciation of $60,000.
  3. Long-term investments that cost $70,000 were sold during the year for $100,000.
  4. 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 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.

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