Mary Walker, president of Rusco Company, considers $35,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $30,000 in cash was available at the end of this year. Because 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 Assets Current assets: This Year Last Year Cash and cash equivalents Accounts Receivable Inventory Prepaid expenses Total current assets Long-term investments Plant and equipment Less accumulated depreciation Net plant and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Income taxes payable Total current liabilities Bonds Payable Total liabilities Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 30,000 241,000 263,500 $ 51,000 229,500 205,000 17,500 33,000 552,000 518,500 135,000 195,000 890,000 765,000 217,500 194,500 672,500 570,500 $ 1,359,500 $ 1,284,000 $ 246,500 9,500 $ 178,000 18,000 54,000 46,500 310,000 242,500 245,000 130,000 555,000 372,500 717,500 675,000 87,000 236,500 804,500 911,500 $ 1,359,500 $ 1,284,000 Selling and administrative expenses Net operating income Rusco Company Income Statement For This Year Ended July 31 Sales $ 1,100,000 Cost of goods sold 687,500 Gross margin 412,500 294,250 118,250 $ 27,500 (9,000) 18,500 136,750 40,950 $ 95,800 Nonoperating items: Gain on sale of investments Loss on sale of equipment Income before taxes Income taxes Net income The following additional information is available for this year. a. The company paid a cash dividend. b. Equipment costing $120,000 with accumulated depreciation of $55,000 was sold for $56,000. c. Long-term investments costing $60,000 were sold for $87,500. d. The company did not retire any bonds payable or repurchase any of its common stock. Required: For this year: 1. Determine the net cash provided by (used in) operating activities using the indirect method. 2. Prepare a statement of cash flows. 3. Compute free cash flow.
Mary Walker, president of Rusco Company, considers $35,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $30,000 in cash was available at the end of this year. Because 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 Assets Current assets: This Year Last Year Cash and cash equivalents Accounts Receivable Inventory Prepaid expenses Total current assets Long-term investments Plant and equipment Less accumulated depreciation Net plant and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Income taxes payable Total current liabilities Bonds Payable Total liabilities Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 30,000 241,000 263,500 $ 51,000 229,500 205,000 17,500 33,000 552,000 518,500 135,000 195,000 890,000 765,000 217,500 194,500 672,500 570,500 $ 1,359,500 $ 1,284,000 $ 246,500 9,500 $ 178,000 18,000 54,000 46,500 310,000 242,500 245,000 130,000 555,000 372,500 717,500 675,000 87,000 236,500 804,500 911,500 $ 1,359,500 $ 1,284,000 Selling and administrative expenses Net operating income Rusco Company Income Statement For This Year Ended July 31 Sales $ 1,100,000 Cost of goods sold 687,500 Gross margin 412,500 294,250 118,250 $ 27,500 (9,000) 18,500 136,750 40,950 $ 95,800 Nonoperating items: Gain on sale of investments Loss on sale of equipment Income before taxes Income taxes Net income The following additional information is available for this year. a. The company paid a cash dividend. b. Equipment costing $120,000 with accumulated depreciation of $55,000 was sold for $56,000. c. Long-term investments costing $60,000 were sold for $87,500. d. The company did not retire any bonds payable or repurchase any of its common stock. Required: For this year: 1. Determine the net cash provided by (used in) operating activities using the indirect method. 2. Prepare a statement of cash flows. 3. Compute free cash flow.
Chapter6: Business Expenses
Section: Chapter Questions
Problem 43P
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