Question

Mary Walker, president of Rusco Company, considers $47,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $42,000 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	$	42,000		$	65,400
Accounts receivable		257,800			245,100
Inventory		274,300			212,200
Prepaid expenses		25,900			47,400
Total current assets		600,000			570,100
Long-term investments		171,000			255,000
Plant and equipment		914,000			777,000
Less accumulated depreciation		223,500			198,100
Net plant and equipment		690,500			578,900
Total assets	$	1,461,500		$	1,404,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	259,700		$	180,400
Accrued liabilities		10,700			20,400
Income taxes payable		63,600			52,500
Total current liabilities		334,000			253,300
Bonds Payable		281,000			154,000
Total liabilities		615,000			407,300
Stockholders’ equity:
Common stock		807,500			735,000
Retained earnings		39,000			261,700
Total stockholders' equity		846,500			996,700
Total liabilities and stockholders' equity	$	1,461,500		$	1,404,000

Rusco Company Income Statement For This Year Ended July 31
Sales					$	1,340,000
Cost of goods sold						837,500
Gross margin						502,500
Selling and administrative expenses						358,450
Net operating income						144,050
Nonoperating items:
Gain on sale of investments	$	33,500
Loss on sale of equipment		(11,400	)			22,100
Income before taxes						166,150
Income taxes						49,710
Net income					$	116,440

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 $65,600. The equipment originally cost $144,000 and had accumulated depreciation of $67,000.
3. Long-term investments that cost $84,000 were sold during the year for $117,500.
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.

Using 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 Flows—Indirect Method (partial)

Prepare 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

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

	Free cash flow

Answer 1