Question

Mary Walker, president of Rusco Products, considers $14,000 to be the minimum cash balalnce for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of 2009. 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

July 31, 2009 and 2008

2009 2008

Assets

Current Assets:

Cash................................................. $8,000 $21,000

Accounts Rec....................................... 120,000 80,000

Inventory........................................... 140,000 90,000

Prepaid Exp........................................ 5,000 9,000

Total Current Assets.................................. 273,000 200,000

Long-term Investments.............................. 50,000 70,000

Pant and equipment.................................. 430,000 300,000

Less Accumulated Depriciation................. 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

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 and Stockholders Equity........ $693,000 $520,000

Rusco Products

Income Statement

For the Year Ended July 31, 2009

Sales..................................................................... $500,000

Cost of Goods Sold..................................................... 300,000

Gross Margin........................................................... 200,000

Selling and Administrative Exp....................................... 158,000

Net Operating Income................................................. 42,000

Nonoperating items:

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 2009.

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 of 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, compute the net cash provided by operating activities for 2009.