Sharon Feldman, president of Allied Company, considers $20,000 to be a minimum cash balance for operating purposes. As can be seen from the following statements, only $15,000 in cash was available at the end of 2011. Because the company reported a large net income for the year, and also issued bonds and sold some long-term investments, the sharp decline in cash is puzzling to Ms. Feldman. Assets Current assets: Allied Company Comparative Balance Sheet December 31, 2011, and 2010 2011 2010 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,000 $ 33,000 Accounts receivable . . . . . . . . . . . . . . . . . 200,000 210,000 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 196,000 Prepaid expenses . . . . . . . . . . . . . . . . . . 7,000 15,000 Total current assets . . . . . . . . . . . . . . . . . . . 472,000 454,000 Long-term investments . . . . . . . . . . . . . . . . 90,000 120,000 Plant and equipment . . . . . . . . . . . . . . . . . . 860,000 750,000 Less accumulated depreciation . . . . . . . . 210,000 190,000 Net plant and equipment . . . . . . . . . . . . . . . 650,000 560,000 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $1,212,000 $1,134,000 Liabilities and Stockholders Equity Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . $ 175,000 $ 230,000 Accrued liabilities . . . . . . . . . . . . . . . . . . . 8,000 15,000 Income taxes payable . . . . . . . . . . . . . . . 42,000 39,000 Total current liabilities . . . . . . . . . . . . . . . . . 225,000 284,000 Bonds payable . . . . . . . . . . . . . . . . . . . . . . . 200,000 100,000 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 425,000 384,000 Stockholders equity: Common stock . . . . . . . . . . . . . . . . . . . . . 595,000 600,000 Retained earnings . . . . . . . . . . . . . . . . . . 192,000 150,000 Total stockholders equity . . . . . . . . . . . . . . . 787,000 750,000 Total liabilities and stockholders equity . . . . $1,212,000 $1,134,000 Allied Company Income Statement For the Year Ended December 31, 2011 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $800,000 Cost of goods sold . . . . . . . . . . . . . . . . . . . . 500,000 Gross margin . . . . . . . . . . . . . . . . . . . . . . . . 300,000 Selling and administrative expenses . . . . . . 214,000 Net operating income . . . . . . . . . . . . . . . . . 86,000 Nonoperating items: Gain on sale of investments . . . . . . . . . . . $20,000 Loss on sale of equipment . . . . . . . . . . . . (6,000) 14,000 Income before taxes . . . . . . . . . . . . . . . . . . 100,000 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 30,000 Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,000 The following additional information is available for the year 2011: a. The company sold long-term investments with an original cost of $30,000 for $50,000 during the year. b. Equipment that had cost $90,000 and on which there was $40,000 in accumulated deprecia- tion was sold during the year for $44,000. c. The company declared and paid a cash dividend during the year. d. The stock of a dissident stockholder was repurchased for cash and retired during the year. No issues of stock were made. e. The company did not retire any bonds during the year. Required: 1. Using the indirect method, compute the net cash provided by operating activities for 2011. 2. Prepare a statement of cash flows for 2011. 3. Compute free cash flow for 2011. 4. Explain the major reasons for the decline in the companys cash balance