PROBLEM 14-14 Prepare and Interpret a Statement of Cash Flows; Free Cash Flow (L01, 102, 103] Sharon Feldman, president of Allied Company, considers $20,000 to be a minimum cash balance for operating purposes. As can be seen from the following statements, only $15,000 in cash was available at the end of 2011. Because the company reported a large net income for the year, and also issued bonds and sold some long-term investments, the sharp decline in cash is puzzling to Ms. Feldman Allied Company Comparative Balance Sheet December 31, 2011, and 2010 Assets 2011 2010 Current assets: Cash 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 $ 15.000 $ 33,000 200,000 210,000 250,000 196,000 7,000 15,000 472,000 454,000 90,000 120,000 860,000 750,000 210,000 190,000 650,000 560,000 $1,212,000 $1,134,000 $ 175,000 $230,000 8,000 15,000 42.000 39,000 225,000 284,000 200,000 100,000 425,000 384,000 505.000 600,000 Retained earnings. 192,000 150,000 Total stockholders' equity a 787,000 750,000 Total liabilities and stockholders' equity.. $1,212,000 $1,134,000 Stockholders' equity Common stock. Allied Company Income Statement For the Year Ended December 31, 2011 Sales Cost of goods sold. Gross margin.. Selling and administrative expenses. Net operating income.. Nonoperating items: Gain on sale of investments. Loss on sale of equipment.. Income before taxes... Income taxes Net income. $800,000 500,000 300,000 214,000 86,000 $20,000 (6,000) 14,000 100,000 30,000 $ 70,000 The following additional information is available for the year 2011: The company sold long-term investments with an original cost of $30,000 for $50,000 during the year. b Equipment that had cost $90,000 and on which there was $40,000 in accumulated deprecia tion was sold during the year for $44,000. c. The company declared and paid a cash dividend during the year. d. The stock of a dissident stockholder was repurchased for cash and retired during the year. No issues of stock were made. e. The company did not retire any bonds during the year. Required: 1. Using the indirect method, compute the net cash provided by operating activities for 2011. 2. Prepare a statement of cash flows for 2011, 3. Compute free cash flow for 2011. 4. Explain the major reasons for the decline in the company's cash balance