80.2K

Verified Solution

Link Copied!

Mary Walker, president of Rusco Company, considers $22,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $17,000 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	$ 17,000	$ 35,400
Accounts Receivable	222,800	212,600
Inventory	251,800	197,200
Prepaid expenses	8,400	17,400
Total current assets	500,000	462,600
Long-term investments	96,000	130,000
Plant and equipment	864,000	752,000
Less accumulated depreciation	211,000	190,600
Net plant and equipment	653,000	561,400
Total assets	$ 1,249,000	$ 1,154,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 232,200	$ 175,400
Accrued liabilities	8,200	15,400
Income taxes payable	43,600	40,000
Total current liabilities	284,000	230,800
Bonds Payable	206,000	104,000
Total liabilities	490,000	334,800
Stockholders equity:
Common stock	620,000	610,000
Retained earnings	139,000	209,200
Total stockholders' equity	759,000	819,200
Total liabilities and stockholders' equity	$ 1,249,000	$ 1,154,000

Rusco Company Income Statement For This Year Ended July 31
Sales		$ 840,000
Cost of goods sold		525,000
Gross margin		315,000
Selling and administrative expenses		224,700
Net operating income		90,300
Nonoperating items:
Gain on sale of investments	$ 21,000
Loss on sale of equipment	(6,400)	14,600
Income before taxes		104,900
Income taxes		31,460
Net income		$ 73,440

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 $45,600. The equipment originally cost $94,000 and had accumulated depreciation of $42,000.
3. Long-term investments that cost $34,000 were sold during the year for $55,000.
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.

Answer & Explanation Solved by verified expert

See Answer