In: Accounting
Mary Walker, president of Rusco Company, considers $41,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $36,000 in cash was available at the end of 2015. 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 July 31, 2015 and 2014 |
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2015 | 2014 | |||
Assets | ||||
Current assets: | ||||
Cash | $ | 36,000 | $ | 58,200 |
Accounts Receivable | 225,200 | 237,300 | ||
Inventory | 268,900 | 208,600 | ||
Prepaid expenses | 21,700 | 40,200 | ||
Total current assets | 551,800 | 544,300 | ||
Long-term investments | 153,000 | 225,000 | ||
Plant and equipment | 902,000 | 771,000 | ||
Less accumulated depreciation | 220,500 | 196,300 | ||
Net plant and equipment | 681,500 | 574,700 | ||
Total assets |
$ | 1,386,300 | $ | 1,344,000 |
Liabilities and Stockholders' Equity | ||||
Current liabilities: | ||||
Accounts payable | $ | 193,900 | $ | 253,100 |
Accrued liabilities | 10,100 | 19,200 | ||
Income taxes payable | 58,800 | 49,500 | ||
Total current liabilities | 262,800 | 321,800 | ||
Bonds Payable | 263,000 | 0 | ||
Total liabilities | 525,800 | 321,800 | ||
Stockholders’ equity: | ||||
Common stock | 735,000 | 705,000 | ||
Retained earnings | 125,500 | 317,200 | ||
Total stockholders' equity | 860,500 | 1,022,200 | ||
Total liabilities and stockholders' equity | $ | 1,386,300 | $ | 1,344,000 |
Rusco Company Income Statement For the Year Ended July 31, 2015 |
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Sales | $ | 1,220,000 | |
Cost of goods sold | 762,500 | ||
Gross margin | 457,500 | ||
Selling and administrative expenses | 326,350 | ||
Net operating income | 131,150 | ||
Nonoperating items: | |||
Gain on sale of investments | $30,500 | ||
Loss on sale of equipment | (10,200) | 20,300 | |
Income before taxes | 151,450 | ||
Income taxes | 45,330 | ||
Net income | $ | 106,120 | |
The following additional information is available for the year 2015. |
a. | The company declared and paid a cash dividend. |
b. | Equipment was sold during the year for $60,800. The equipment had originally cost $132,000 and had accumulated depreciation of $61,000. |
c. | Long-term investments that had cost $72,000 were sold during the year for $102,500. |
d. | 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 operating activities for 2015. (Negative amount should be indicated by a minus sign.) |
2. |
Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for 2015. (List any deduction in cash and cash outflows as negative amounts.) |
3. |
Compute free cash flow for 2015. (Negative amount should be indicated by a minus sign.) |
1.
Rusco Company | |||
Cash Flow Statement | |||
For the year ended July 31, 2015 | |||
Cash flows from operating activities | |||
Net Income | $ 106,120 | ||
Adjustment to reconcile net income to: | |||
Depreciation expense | $ 85,200 | 220500-196300+61000 | |
Gain on sale of investment | $ (30,500) | ||
Loss on sale of equipment | $ 10,200 | ||
Decrease in accounts receivable | $ 12,100 | 237300-225200 | |
Increase in inventory | $ (60,300) | 208600-268900 | |
Decrease in prepaid expenses | $ 18,500 | 40200-21700 | |
Decrease in accounts payable | $ (59,200) | 193900-253100 | |
Decrease in accrued payable | $ (9,100) | 10100-19200 | |
Increase in Incometax payable | $ 9,300 | 58800-49500 | |
$ (23,800) | |||
Net cash flow from operating activities | $ 82,320 |
2.
Rusco Company | |||
Cash Flow Statement | |||
For the year ended July 31, 2015 | |||
Cash flows from operating activities | |||
Net Income | $ 106,120 | ||
Adjustment to reconcile net income to: | |||
Depreciation expense | $ 85,200 | 220500-196300+61000 | |
Gain on sale of investment | $ (30,500) | ||
Loss on sale of equipment | $ 10,200 | ||
Decrease in accounts receivable | $ 12,100 | 237300-225200 | |
Increase in inventory | $ (60,300) | 208600-268900 | |
Decrease in prepaid expenses | $ 18,500 | 40200-21700 | |
Decrease in accounts payable | $ (59,200) | 193900-253100 | |
Decrease in accrued payable | $ (9,100) | 10100-19200 | |
Increase in Incometax payable | $ 9,300 | 58800-49500 | |
$ (23,800) | |||
Net cash flow from operating activities | $ 82,320 | ||
Cash flows from investing activities | |||
Cash received from sale of equipment | $ 60,800 | ||
Cash received from sale of investments | $ 102,500 | ||
Cash paid for Purchase of equipment | $ (263,000) | 771000-902000-132000 | |
Net cash used for investing activities | $ (99,700) | ||
Cash flows from financing activities | |||
Cash received from issuance of common stock | $ 30,000 | 735000-705000 | |
Cash paid for dividend | $ (297,820) | 125500-317200-106120 | |
Cash from issue of bonds | $ 263,000 | ||
Net cash flow from financing activities | $ (4,820) | ||
Net increase in cash and cash equivalents | $ (22,200) | ||
Cash and cash equivalents at beginning of period | $ 58,200 | ||
Cash and cash equivalents at end of period | $ 36,000 |
3.
Net cash flow from operating activities | $ 82,320 |
Less: Capital expenditure | $ (263,000) |
Less: Dividend | $ (297,820) |
Free cash flow | $ (478,500) |