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15 Sep
2020

Using the indirect method, compute the net cash provided by/used in operating activities for this year.

Category:ACADEMICIAN

SOLUTION AT Australian Expert Writers

Mary Walker, president of Rusco Company, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 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 CompanyComparative Balance Sheetat July 31
This Year
Last Year
Assets
Current assets:
Cash
$
8,000
$
21,000
Accounts receivable
120,000
80,000
Inventory
140,000
90,000
Prepaid expenses
5,000
9,000
Total current assets
273,000
200,000
Long-term investments
50,000
70,000
Plant and equipment
430,000
300,000
Less accumulated depreciation
60,000
50,000
Net plant and equipment
370,000
250,000
Total assets
$
693,000
$
520,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
123,000
$
60,000
Accrued liabilities
8,000
17,000
Income taxes payable
20,000
12,000
Total current liabilities
151,000
89,000
Bonds payable
70,000

Total liabilities
221,000
89,000
Stockholders’ equity:
Common stock
366,000
346,000
Retained earnings
106,000
85,000
Total stockholders’ equity
472,000
431,000
Total liabilities and stockholders’ equity
$
693,000
$
520,000
Rusco CompanyIncome StatementFor This Year Ended July 31
Sales
$
500,000
Cost of goods sold
300,000
Gross margin
200,000
Selling and administrative expenses
158,000
Net operating income
42,000
Nonoperating items:
Gain on sale of investments
$
10,000
Loss on sale of equipment
(2,000
)
8,000
Income before taxes
50,000
Income taxes
20,000
Net income
$
30,000
The following additional information is available for this year.
The company declared and paid a cash dividend.
Equipment was sold during the year for $8,000. The equipment originally cost $20,000 and had accumulated depreciation of $10,000.
Long-term investments that cost $20,000 were sold during the year for $30,000.
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.

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