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Item3

Item 3 5 points

Mary Walker, president of Rusco Company, considers $48,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $43,000 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	$	43,000		$	66,600
Accounts Receivable		259,200			246,400
Inventory		275,200			212,800
Prepaid expenses		26,600			48,600
Total current assets		604,000			574,400
Long-term investments		174,000			260,000
Plant and equipment		916,000			778,000
Less accumulated depreciation		224,000			198,400
Net plant and equipment		692,000			579,600
Total assets	$	1,470,000		$	1,414,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	260,800		$	180,600
Accrued liabilities		10,800			20,600
Income taxes payable		64,400			53,000
Total current liabilities		336,000			254,200
Bonds Payable		284,000			156,000
Total liabilities		620,000			410,200
Stockholders equity:
Common stock		815,000			740,000
Retained earnings		35,000			263,800
Total stockholders' equity		850,000			1,003,800
Total liabilities and stockholders' equity	$	1,470,000		$	1,414,000

Rusco Company Income Statement For This Year Ended July 31
Sales					$	1,360,000
Cost of goods sold						850,000
Gross margin						510,000
Selling and administrative expenses						363,800
Net operating income						146,200
Nonoperating items:
Gain on sale of investments	$	34,000
Loss on sale of equipment		(11,600	)			22,400
Income before taxes						168,600
Income taxes						50,440
Net income					$	118,160

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 $66,400. The equipment originally cost $146,000 and had accumulated depreciation of $68,000.
3. Long-term investments that cost $86,000 were sold during the year for $120,000.
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.