Mary Walker, president of Rusco Company, considers $28,000 to be the minimum cas
ID: 2582790 • Letter: M
Question
Mary Walker, president of Rusco Company, considers $28,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $23,000 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.
The following additional information is available for this year.
The company declared and paid a cash dividend.
Equipment was sold during the year for $50,400. The equipment originally cost $106,000 and had accumulated depreciation of $48,000.
Long-term investments that cost $46,000 were sold during the year for $70,000.
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.
Rusco CompanyComparative Balance Sheet
at July 31 This Year Last Year Assets Current assets: Cash $ 23,000 $ 42,600 Accounts Receivable 231,200 220,400 Inventory 257,200 200,800 Prepaid expenses 12,600 24,600 Total current assets 524,000 488,400 Long-term investments 114,000 160,000 Plant and equipment 876,000 758,000 Less accumulated depreciation 214,000 192,400 Net plant and equipment 662,000 565,600 Total assets $ 1,300,000 $ 1,214,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 295,400 $ 238,800 Accrued liabilities 8,800 16,600 Income taxes payable 48,400 43,000 Total current liabilities 352,600 298,400 Bonds Payable 224,000 116,000 Total liabilities 576,600 414,400 Stockholders’ equity: Common stock 665,000 640,000 Retained earnings 58,400 159,600 Total stockholders' equity 723,400 799,600 Total liabilities and stockholders' equity $ 1,300,000 $ 1,214,000
Explanation / Answer
1.
2.
3.
RUSCO COMPANY Statement of Cashflow (Indirect) For year ended July 31, Cash flows from operating activities Net Income $ 83,760 Adjustment to reconcile net income to: Depreciation expense $ 69,600 $214,000-$192,400+$48,000 Gain on sale of investments $ (24,000) Loss on sale of equipment $ 7,600 Increase in accounts receivable $ (10,800) Increase in inventory $ (56,400) Decrease in prepaid expenses $ 12,000 Increase in accounts payable $ 56,600 Decrease in accrued liabilities $ (7,800) Increase in income tax payable $ 5,400 Total adjustments $ 52,200 Net cash provided by operating activities $ 135,960