Problem 12-13A Prepare and Interpret a Statement of Cash Flows; Free Cash Flow [LO12-1, LO12-2, LO12-3]

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 2015. 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 July 31, 2015 and 2014

2015

2014

Assets

Current assets:

Cash

$

22,000

$

41,400

Accounts Receivable

208,400

219,100

Inventory

256,300

200,200

Prepaid expenses

11,900

23,400

Total current assets

498,600

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

$

1,270,100

$

1,204,000

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

181,300

$

237,700

Accrued liabilities

8,700

16,400

Income taxes payable

47,600

42,500

Total current liabilities

237,600

296,600

Bonds Payable

221,000

0

Total liabilities

458,600

296,600

Stockholders equity:

Common stock

662,000

635,000

Retained earnings

149,500

272,400

Total stockholders' equity

811,500

907,400

Total liabilities and stockholders' equity

$

1,270,100

$

1,204,000

Rusco Company Income Statement For the Year Ended July 31, 2015
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 the year 2015.

a.	The company declared and paid a cash dividend.
b.	Equipment was sold during the year for $49,600. The equipment had originally cost $104,000 and had accumulated depreciation of $47,000.
c.	Long-term investments that had cost $44,000 were sold during the year for $67,500.
d.	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 operating activities for 2015. (Negative amount should be indicated by a minus sign.)

Net cash provided by operating activities

$41,440

2. Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for 2015. (List any deduction in cash and cash outflows as negative amounts.)

Rusco Company
Statement of Cash Flows - Indirect Method
For the Year Ended July 31, 2015
Operating activities:
Net income
Adjustments to convert net income to cash basis:
Depreciation
Decrease in accrued liabilities
Increase in income taxes payable
Gain on sale of investments
Loss on sale of equipment
		0
Net cash provided by operating activities		0
Investing activities:
Proceeds from sale of long-term investments
Proceeds from sale of equipment
Additions to plant and equipment
Net cash used in investing activities		0
Financing activities:
Issuance of bonds payable
Cash dividends
Net cash provided by financing activities		0
Net decrease in cash		0
Beginning cash and cash equivalents
Ending cash and cash equivalents		$0

3. Compute free cash flow for 2015. (Negative amount should be indicated by a minus sign.)

Free cash flow