Mary Walker, president of Rusco Company, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker.
Comparative Balance Sheet
at July 31
|This Year||Last Year|
|Total current assets||273,000||200,000|
|Plant and equipment||430,000||300,000|
|Less accumulated depreciation||60,000||50,000|
|Net plant and equipment||370,000||250,000|
|Liabilities and Stockholders’ Equity|
|Income taxes payable||20,000||12,000|
|Total current liabilities||151,000||89,000|
|Total stockholders’ equity||472,000||431,000|
|Total liabilities and stockholders’ equity||$||693,000||$||520,000|
For This Year Ended July 31
|Cost of goods sold||300,000|
|Selling and administrative expenses||158,000|
|Net operating income||42,000|
|Gain on sale of investments||$||10,000|
|Loss on sale of equipment||(2,000||)||8,000|
|Income before taxes||50,000|
The following additional information is available for this year.
- The company declared and paid a cash dividend.
- Equipment was sold during the year for $8,000. The equipment originally cost $20,000 and had accumulated depreciation of $10,000.
- Long-term investments that cost $20,000 were sold during the year for $30,000.
- The company did not retire any bonds payable or repurchase any of its common stock.
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.
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