Question

Mary Walker, president of Rusco Company, considers $28,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $23,000 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	$	23,000		$	42,600
Accounts Receivable		231,200			220,400
Inventory		257,200			200,800
Prepaid expenses		12,600			24,600
Total current assets		524,000			488,400
Long-term investments		114,000			160,000
Plant and equipment		876,000			758,000
Less accumulated depreciation		214,000			192,400
Net plant and equipment		662,000			565,600
Total assets	$	1,300,000		$	1,214,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	295,400		$	238,800
Accrued liabilities		8,800			16,600
Income taxes payable		48,400			43,000
Total current liabilities		352,600			298,400
Bonds Payable		224,000			116,000
Total liabilities		576,600			414,400
Stockholders’ equity:
Common stock		665,000			640,000
Retained earnings		58,400			159,600
Total stockholders' equity		723,400			799,600
Total liabilities and stockholders' equity	$	1,300,000		$	1,214,000

Rusco Company Income Statement For This Year Ended July 31
Sales					$	960,000
Cost of goods sold						600,000
Gross margin						360,000
Selling and administrative expenses						256,800
Net operating income						103,200
Nonoperating items:
Gain on sale of investments	$	24,000
Loss on sale of equipment		(7,600	)			16,400
Income before taxes						119,600
Income taxes						35,840
Net income					$	83,760

The following additional information is available for this year.

The company declared and paid a cash dividend.

Equipment was sold during the year for $50,400. The equipment originally cost $106,000 and had accumulated depreciation of $48,000.

Long-term investments that cost $46,000 were sold during the year for $70,000.

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.