Mary Walker, president of Rusco Company, considers $27,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $22,000 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 $ 22,000 $ 41,400 Accounts Receivable 229,800 219,100 Inventory 256,300 200,200 Prepaid expenses 11,900 23,400 Total current assets 520,000 484,100 Long-term investments 111,000 155,000 Plant and equipment 874,000 757,000 Less accumulated depreciation 213,500 192,100 Net plant and equipment 660,500 564,900 Total assets $ 1,291,500 $ 1,204,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 237,700 $ 176,400 Accrued liabilities 8,700 16,400 Income taxes payable 47,600 42,500 Total current liabilities 294,000 235,300 Bonds Payable 221,000 114,000 Total liabilities 515,000 349,300 Stockholders’ equity: Common stock 657,500 635,000 Retained earnings 119,000 219,700 Total stockholders' equity 776,500 854,700 Total liabilities and stockholders' equity $ 1,291,500 $ 1,204,000 Rusco Company Income Statement For This Year Ended July 31 Sales $ 940,000 Cost of goods sold 587,500 Gross margin 352,500 Selling and administrative expenses 251,450 Net operating income 101,050 Nonoperating items: Gain on sale of investments $ 23,500 Loss on sale of equipment (7,400) 16,100 Income before taxes 117,150 Income taxes 35,110 Net income $ 82,040 The following additional information is available for this year. The company declared and paid a cash dividend. Equipment was sold during the year for $49,600. The equipment originally cost $104,000 and had accumulated depreciation of $47,000. Long-term investments that cost $44,000 were sold during the year for $67,500. 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 $27,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $22,000 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 $ 22,000 $ 41,400 Accounts Receivable 229,800 219,100 Inventory 256,300 200,200 Prepaid expenses 11,900 23,400 Total current assets 520,000 484,100 Long-term investments 111,000 155,000 Plant and equipment 874,000 757,000 Less accumulated depreciation 213,500 192,100 Net plant and equipment 660,500 564,900 Total assets $ 1,291,500 $ 1,204,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 237,700 $ 176,400 Accrued liabilities 8,700 16,400 Income taxes payable 47,600 42,500 Total current liabilities 294,000 235,300 Bonds Payable 221,000 114,000 Total liabilities 515,000 349,300 Stockholders’ equity: Common stock 657,500 635,000 Retained earnings 119,000 219,700 Total stockholders' equity 776,500 854,700 Total liabilities and stockholders' equity $ 1,291,500 $ 1,204,000 Rusco Company Income Statement For This Year Ended July 31 Sales $ 940,000 Cost of goods sold 587,500 Gross margin 352,500 Selling and administrative expenses 251,450 Net operating income 101,050 Nonoperating items: Gain on sale of investments $ 23,500 Loss on sale of equipment (7,400) 16,100 Income before taxes 117,150 Income taxes 35,110 Net income $ 82,040 The following additional information is available for this year. The company declared and paid a cash dividend. Equipment was sold during the year for $49,600. The equipment originally cost $104,000 and had accumulated depreciation of $47,000. Long-term investments that cost $44,000 were sold during the year for $67,500. 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.

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter16: Accounting For Accounts Receivable

Section: Chapter Questions

Problem 2CP

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Question

	This Year	Last Year
Rusco Company Comparative Balance Sheet at July 31
Assets
Current assets:
Cash	$ 22,000	$ 41,400
Accounts Receivable	229,800	219,100
Inventory	256,300	200,200
Prepaid expenses	11,900	23,400
Total current assets	520,000	484,100
Long-term investments	111,000	155,000
Plant and equipment	874,000	757,000
Less accumulated depreciation	213,500	192,100
Net plant and equipment	660,500	564,900
Total assets	$ 1,291,500	$ 1,204,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 237,700	$ 176,400
Accrued liabilities	8,700	16,400
Income taxes payable	47,600	42,500
Total current liabilities	294,000	235,300
Bonds Payable	221,000	114,000
Total liabilities	515,000	349,300
Stockholders’ equity:
Common stock	657,500	635,000
Retained earnings	119,000	219,700
Total stockholders' equity	776,500	854,700
Total liabilities and stockholders' equity	$ 1,291,500	$ 1,204,000

Rusco Company Income Statement For This Year Ended July 31
Sales		$ 940,000
Cost of goods sold		587,500
Gross margin		352,500
Selling and administrative expenses		251,450
Net operating income		101,050
Nonoperating items:
Gain on sale of investments	$ 23,500
Loss on sale of equipment	(7,400)	16,100
Income before taxes		117,150
Income taxes		35,110
Net income		$ 82,040

The following additional information is available for this year.

The company declared and paid a cash dividend.
Equipment was sold during the year for $49,600. The equipment originally cost $104,000 and had accumulated depreciation of $47,000.
Long-term investments that cost $44,000 were sold during the year for $67,500.
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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