Question 2

Mary Walker, president of Rusco Company, considers $24,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $19,000 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	$ 19,000	$ 37,800
Accounts Receivable	225,600	215,200
Inventory	253,600	198,400
Prepaid expenses	9,800	19,800
Total current assets	508,000	471,200
Long-term investments	102,000	140,000
Plant and equipment	868,000	754,000
Less accumulated depreciation	212,000	191,200
Net plant and equipment	656,000	562,800
Total assets	$ 1,266,000	$ 1,174,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 234,400	$ 175,800
Accrued liabilities	8,400	15,800
Income taxes payable	45,200	41,000
Total current liabilities	288,000	232,600
Bonds Payable	212,000	108,000
Total liabilities	500,000	340,600
Stockholders equity:
Common stock	635,000	620,000
Retained earnings	131,000	213,400
Total stockholders' equity	766,000	833,400
Total liabilities and stockholders' equity	$ 1,266,000	$ 1,174,000

Rusco Company Income Statement For This Year Ended July 31
Sales		$ 880,000
Cost of goods sold		550,000
Gross margin		330,000
Selling and administrative expenses		235,400
Net operating income		94,600
Nonoperating items:
Gain on sale of investments	$ 22,000
Loss on sale of equipment	(6,800)	15,200
Income before taxes		109,800
Income taxes		32,920
Net income		$ 76,880

The following additional information is available for this year.

The company declared and paid a cash dividend.

Equipment was sold during the year for $47,200. The equipment originally cost $98,000 and had accumulated depreciation of $44,000.

Long-term investments that cost $38,000 were sold during the year for $60,000.

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.

sing the indirect method, compute the net cash provided by/used in operating activities for this year. (List any deduction in cash and cash outflows as negative amounts.)

Rusco Company
Statement of Cash FlowsIndirect Method (partial)

repare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)

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

Compute free cash flow for this year. (Negative amount should be indicated by a minus sign.)

	Free cash flow