Mary Walker, president of Rusco Company, considers $49,000 to be the minimum cas
ID: 2499171 • Letter: M
Question
Mary Walker, president of Rusco Company, considers $49,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $44,000in cash was available at the end of 2014. 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.
Using the indirect method, compute the net cash for operating activities for 2014. (Negative amount should be indicated by a minus sign.)
Prepare a statement of cash flows for 2014. (List any deduction in cash and cash outflows as negative amounts.)
Operating activities:
Adjustments to convert net income to cash basis
Investing activities:
Financing Activities:
Beginning cash and cash equivalents:
Ending cash and cash equivalents:
Compute free cash flow for 2014. (Negative amount should be indicated by a minus sign.)
Mary Walker, president of Rusco Company, considers $49,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $44,000in cash was available at the end of 2014. 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.
Explanation / Answer
Using the direct method, adjust the company’s income statement for 2015 to a cash basis
Amount
Net profit earned during the year
119880
Add- retained earnings
(226300)
Add- non cash /non operating expenses
Loss on sale of equipment
11800
Depreciation
94800
Add- provision for taxes
39470
Less non operating income
Gain on sale of investment
34500
Add- Increase in Current liability/ decrease in current assets
Decrease in AR
12900
Decrease in prepaid exp
22500
Less- Decrease in Current liability/ Increase in current assets
Increase in inventory
62700
Decrease in AP
60800
Decrease in accrued liability
9900
Less- Income tax paid
51170
Net cash flow from operating activity
(144020)
cash flows for 2015
CASH FLOW STATEMENT
AMOUNT
Cash from operating activity
(144020)
Cash from investing activity
Sale of investment
88000
Sale of equipment
67200
Purchase of equipment
(287000)
Cash flow from investing
(131800)
Cash flow from Financing activity
Issue of bonds
287000
Issue of common stock
27000
Cash flow from financing
314000
Add- Cash and cash equivalent in beginning
67800
Cash and cash equivalent at end
44000
Amount
Net profit earned during the year
119880
Add- retained earnings
(226300)
Add- non cash /non operating expenses
Loss on sale of equipment
11800
Depreciation
94800
Add- provision for taxes
39470
Less non operating income
Gain on sale of investment
34500
Add- Increase in Current liability/ decrease in current assets
Decrease in AR
12900
Decrease in prepaid exp
22500
Less- Decrease in Current liability/ Increase in current assets
Increase in inventory
62700
Decrease in AP
60800
Decrease in accrued liability
9900
Less- Income tax paid
51170
Net cash flow from operating activity
(144020)
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