Problem 12-13A Prepare and Interpret a Statement of Cash Flows; Free Cash Flow [
ID: 2515778 • Letter: P
Question
Problem 12-13A Prepare and Interpret a Statement of Cash Flows; Free Cash Flow [LO12-1, LO12-2, LO12-3]
Mary Walker, president of Rusco Company, considers $27,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $22,000 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.
The following additional information is available for the year 2015.
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.)
Rusco CompanyComparative Balance Sheet
July 31, 2015 and 2014 2015 2014 Assets Current assets: Cash $ 22,000 $ 41,400 Accounts Receivable 208,400 219,100 Inventory 256,300 200,200 Prepaid expenses 11,900 23,400 Total current assets 498,600 484,100 Long-term investments 111,000 155,000 Plant and equipment 874,000 757,000 Less accumulated depreciation 213,500 192,100 Net plant and equipment 660,500 564,900 Total assets
$ 1,270,100 $ 1,204,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 181,300 $ 237,700 Accrued liabilities 8,700 16,400 Income taxes payable 47,600 42,500 Total current liabilities 237,600 296,600 Bonds Payable 221,000 0 Total liabilities 458,600 296,600 Stockholders’ equity: Common stock 662,000 635,000 Retained earnings 149,500 272,400 Total stockholders' equity 811,500 907,400
Total liabilities and stockholders' equity $ 1,270,100 $ 1,204,000 Rusco Company
Income Statement
For the Year Ended July 31, 2015 Sales $ 940,000 Cost of goods sold 587,500 Gross margin 352,500 Selling and administrative expenses 251,450 Net operating income 101,050 Nonoperating items: Gain on sale of investments $23,500 Loss on sale of equipment (7,400) 16,100 Income before taxes 117,150 Income taxes 35,110 Net income $ 82,040
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 $49,600. The equipment had originally cost $104,000 and had accumulated depreciation of $47,000. c. Long-term investments that had cost $44,000 were sold during the year for $67,500. 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.)
Net cash provided by operating activities $41,440Explanation / Answer
1)
2)
3)
Rusco Company Cash Flow Statement For the year ended July 31, 2015 Cash flows from operating activities Net Income $ 82,040 Adjustment to reconcile net income to: Depreciation expense $ 68,400 213500-192100+47000 Gain on sale of investment $ (23,500) Loss on sale of equipment $ 7,400 Decrease in accounts receivable $ 10,700 219100-208400 Increase in inventory $ (56,100) 200200-256300 Decrease in prepaid expenses $ 11,500 23400-11900 Decrease in accounts payable $ (56,400) 181300-237700 Decrease in accrued payable $ (7,700) 8700-16400 Increase in Incometax payable $ 5,100 47600-42500 $ (40,600) Net cash flow from operating activities $ 41,440