Mary Walker, president of Rusco Company, considers $21,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $16,000 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 $ 16,000 $ 34,200 Accounts Receivable 221,400 211,300 Inventory 250,900 196,600 Prepaid expenses 7,700 16,200 Total current assets 496,000 458,300

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

Mary Walker, president of Rusco Company, considers $21,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $16,000 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 $ 16,000 $ 34,200
Accounts Receivable 221,400 211,300
Inventory 250,900 196,600
Prepaid expenses 7,700 16,200
Total current assets 496,000 458,300
Long-term investments 93,000 125,000
Plant and equipment 862,000 751,000
Less accumulated depreciation 210,500 190,300
Net plant and equipment 651,500 560,700
Total assets $ 1,240,500 $ 1,144,000
Liabilities and Stockholders' Equity    
Current liabilities:    
Accounts payable $ 231,100 $ 175,200
Accrued liabilities 8,100 15,200
Income taxes payable 42,800 39,500
Total current liabilities 282,000 229,900
Bonds Payable 203,000 102,000
Total liabilities 485,000 331,900
Stockholders’ equity:    
Common stock 612,500 605,000
Retained earnings 143,000 207,100
Total stockholders' equity 755,500 812,100
Total liabilities and stockholders' equity $ 1,240,500 $ 1,144,000

 

Rusco Company
Income Statement
For This Year Ended July 31
Sales   $ 820,000
Cost of goods sold   512,500
Gross margin   307,500
Selling and administrative expenses   219,350
Net operating income   88,150
Nonoperating items:    
Gain on sale of investments $ 20,500  
Loss on sale of equipment (6,200) 14,300
Income before taxes   102,450
Income taxes   30,730
Net income   $ 71,720

 

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 $44,800. The equipment originally cost $92,000 and had accumulated depreciation of $41,000.
  3. Long-term investments that cost $32,000 were sold during the year for $52,500.
  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.

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 3 images

Blurred answer
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education