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Rusco Products - Net Cash from Operating Activities

Mary Walker, president of Rusco Products, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the statement below, only $8,000 in cash was available at the end of 2005. 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.

The following additional information is available for the year 2005.

a. Dividends totaling $9,000 were declared and paid in cash.
b. Equipment was sold during the year for $8,000. The equipment had originally cost $20,000 and had accumulated depreciation of $10,000.
c. The decrease in the Preferred Stock account is the result of a conversion of preferred stock into an equal dollar amount of common stock.
d. Long-term investments that had cost $20,000, were sold during the year for $30,000.

Required
1. Using the indirect method, compute the net cash by operating activities for 2005.
2. Using the data from (1) above and other data from the problem as needed, prepare a statement of cash flows for 2005.
3. Explain the major reasons for the decline in the company's cash position.

See attached file for full problem description.

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a. Dividends totaling $9,000 were declared and paid in cash.

It is regarded as the cash flow from financing activities. We will put them under the decrease in cash outflow from financing activities.

b. Equipment was sold during the year for $8,000. The equipment had originally cost $20,000 and had accumulated depreciation of $10,000.

It is regarded as the cash flow from ...

Solution Summary

This solution is comprised of a detailed explanation to compute net cash from operating activities and prepare statement of cash flow for Rusco Products in word and excel files.

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