Problem 13-13 Prepare and Interpret a Statement of Cash Flows; Free Cash Flow [LO13-1, LO13-2, LO13-3]

Mary Walker, president of Rusco Company, considers $32,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $27,000 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 and cash equivalents	$	27,000		$	47,400
Accounts receivable		236,800			225,600
Inventory		260,800			203,200
Prepaid expenses		15,400			29,400
Total current assets		540,000			505,600
Long-term investments		126,000			180,000
Plant and equipment		884,000			762,000
Less accumulated depreciation		216,000			193,600
Net plant and equipment		668,000			568,400
Total assets	$	1,334,000		$	1,254,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	243,200		$	177,400
Accrued liabilities		9,200			17,400
Income taxes payable		51,600			45,000
Total current liabilities		304,000			239,800
Bonds Payable		236,000			124,000
Total liabilities		540,000			363,800
Stockholders equity:
Common stock		695,000			660,000
Retained earnings		99,000			230,200
Total stockholders' equity		794,000			890,200
Total liabilities and stockholders' equity	$	1,334,000		$	1,254,000

Rusco Company Income Statement For This Year Ended July 31
Sales					$	1,040,000
Cost of goods sold						650,000
Gross margin						390,000
Selling and administrative expenses						278,200
Net operating income						111,800
Nonoperating items:
Gain on sale of investments	$	26,000
Loss on sale of equipment		(8,400	)			17,600
Income before taxes						129,400
Income taxes						38,760
Net income					$	90,640

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 $53,600. The equipment originally cost $114,000 and had accumulated depreciation of $52,000.
3. Long-term investments that cost $54,000 were sold during the year for $80,000.
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.