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. 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. 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 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.

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. 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. 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 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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

	This Year	Last Year
Rusco Company Comparative Balance Sheet at July 31
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.

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

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.