Mary Walker, president of Rusco Company, considers $42,000 to be the minimum cas
ID: 2520316 • Letter: M
Question
Mary Walker, president of Rusco Company, considers $42,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $37,000 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 $61,600. The equipment originally cost $134,000 and had accumulated depreciation of $62,000.
Long-term investments that cost $74,000 were sold during the year for $105,000.
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.
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.)
Prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)
Compute free cash flow for this year. (Negative amount should be indicated by a minus sign.)
Rusco CompanyComparative Balance Sheet
at July 31 This Year Last Year Assets Current assets: Cash $ 37,000 $ 59,400 Accounts Receivable 250,800 238,600 Inventory 269,800 209,200 Prepaid expenses 22,400 41,400 Total current assets 580,000 548,600 Long-term investments 156,000 230,000 Plant and equipment 904,000 772,000 Less accumulated depreciation 221,000 196,600 Net plant and equipment 683,000 575,400 Total assets $ 1,419,000 $ 1,354,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 179,400 $ 254,200 Accrued liabilities 10,200 19,400 Income taxes payable 59,600 50,000 Total current liabilities 249,200 323,600 Bonds Payable 266,000 144,000 Total liabilities 515,200 467,600 Stockholders’ equity: Common stock 770,000 710,000 Retained earnings 133,800 176,400 Total stockholders' equity 903,800 886,400 Total liabilities and stockholders' equity $ 1,419,000 $ 1,354,000
Explanation / Answer
Answer:
1
Using the indirect method, compute the net cash provided by/used in operating activities for this year.
Net cash for operating activities
45440
Working for the answer
Cash Flow statement
Cash flows from operating activities
Net income
107840
Adjustment to reconcile net income
non cash expenses - Depreciation
86400
Non operating gains
-31000
non operating losses
10400
Increase in accounts receivable
-12200
Increase in inventory
-60600
Decrease in prepaid Expanses
19000
Decrease in accounts payable
-74800
Decrease in accrued liabilities
-9200
Increase in income taxes payable
9600
-62400
Net cash for operating activities
45440
2
Cash Flow statement
Cash flows from operating activities
Net income
107840
Adjustment to reconcile net income
non cash expenses - Depreciation
86400
Non operating gains
-31000
non operating losses
10400
Increase in accounts receivable
-12200
Increase in inventory
-60600
Decrease in prepaid Expases
19000
Decrease in accounts payable
-74800
Decrease in accrued liabilities
-9200
Increase in income taxes payable
9600
-62400
Net cash for operating activities
45440
2) Investing activites
Addittions to equipment
-266000
proceeds from sale of equipment
61600
proceeds from sale of investment
105000
Cash flow from Investing activity
-99400
3) financing acivities
increase in bonds payable
122000
Common stock decrease
60000
Cash dividend paid
-150440
Decrease in cash from financing activities
31560
Net decrease in cash and cash eqivalents
-22400
Cash at the beginning of the yr
59400
cash at the end of the yr
37000
3
Net cash provided by operating activities
45440
Capital expenditures
-266000
Dividends
-150440
-416440
Free cash flow
-371000
Free cash flow
-371000
Net cash for operating activities
45440
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