1. Rusco Products
Statement of money Flows (Indirect Approach)
For the year ending New Year's Eve , 2015
Cash flows from operating activities:
Net income =$30,000
Add (deduct) non cash effects on operating income
Depreciation expense = $20,000 Movement in Account Depreciated account: - $50,000 - $10,000 = $40,000 - $60,000
Gain on sale of investment $(10,000)
Loss on sale of kit = $2,000
Increase in deferred taxes = $8,000
Increase in assets $(40,000 ) An increase should be deducted because it implies that not all sales were received in cash
Increase in inventory = $(50,000 ) a rise is deducted because cash was invested in inventory
Decrease in prepaid expenses $4,000 A decrease are going to be added because no all expenses were paid in cash
Increase in accounts payable $63,000 a rise will be added as it implies that cash was generated from supplier credit
Decrease in accrued expenses $(9,000 ) A decrease is deducted as cash was spent to settle it
Net cash provided by operating activities $18,000
Cash flows from investing activities:
Proceeds on sale of investment =30,000
Proceeds on sale of kit =8,000
Purchase of kit = $(150,000 )
Movement in Plant and Equipment account: - $300,000 - $20,000 = $280,000 - $430,000
Net cash employed by investing activities= $(112,000)
Cash flows from financing activities:
Bonds issued =70,000
Proceeds from issuing stock = $20,000
Movement in common shares acc: - $250,000 + $(96,000 - $80,000 = 416,000) = $266,000 - $286,000
Dividends paid= $(9,000)
Net cash provided by financing activities= $81,000
Net decrease in cash =$(13,000)
Cash balance at January 1, 2015 = $21,000
Cash balance at New Year's Eve , 20= $8,000
2. The free income can be calculated from the cash flow statement like this:
Operating income= $18,000
Less: Capital expenditures= (112,000)
= Free income= $94,000
3. we will see from the cash flow statement that the company:
Managed to get a positive cash flow from operations despite the heavy investment in inventories and the increase in accounts receivable by increasing its trade credit.
The cash position declined though, due to the e purchase equipment es that was in excess of the amount raised from he bond issue.
Cash Flow Statement by the Indirect Method:
The income statement is one of the fundamental financial statements. In it, the state of the cash asset of a corporation is analyzed by reporting on how much cash was used y or provided by operating, investing, and financing activities.
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