Using the indirect method, compute the net cash provided by/used in operating activities for this year.


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.

 

Rusco Company
Comparative Balance Sheet
at July 31
This Year Last Year
Assets
Current assets:
Cash $ 8,000 $ 21,000
Accounts receivable 120,000 80,000
Inventory 140,000 90,000
Prepaid expenses 5,000 9,000
Total current assets 273,000 200,000
Long-term investments 50,000 70,000
Plant and equipment 430,000 300,000
Less accumulated depreciation 60,000 50,000
Net plant and equipment 370,000 250,000
Total assets $ 693,000 $ 520,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 123,000 $ 60,000
Accrued liabilities 8,000 17,000
Income taxes payable 20,000 12,000
Total current liabilities 151,000 89,000
Bonds payable 70,000 0
Total liabilities 221,000 89,000
Stockholders’ equity:
Common stock 366,000 346,000
Retained earnings 106,000 85,000
Total stockholders’ equity 472,000 431,000
Total liabilities and stockholders’ equity $ 693,000 $ 520,000

 

Rusco Company
Income Statement
For This Year Ended July 31
Sales $ 500,000
Cost of goods sold 300,000
Gross margin 200,000
Selling and administrative expenses 158,000
Net operating income 42,000
Nonoperating items:
Gain on sale of investments $ 10,000
Loss on sale of equipment (2,000 ) 8,000
Income before taxes 50,000
Income taxes 20,000
Net income $ 30,000

 

The following additional information is available for this year.

 

  1. The company declared and paid a cash dividend.
  2. Equipment was sold during the year for $8,000. The equipment originally cost $20,000 and had accumulated depreciation of $10,000.
  3. Long-term investments that cost $20,000 were sold during the year for $30,000.
  4. 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.

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