Question

Cheryl Wilson, president of Rivers Company, considers $25,000 to be a minimum cash balance for operating purposes. As can be seen from the following statements, only $20,000 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. Wilson. Rivers Company Comparative Balance Sheet December 31, 2011, and 2010 2010 2011 Assets Current assets: Cash Accounts Receivable Inventory Prepaid expenses S 20,000 206,000 254,500 10,500 39,000 216,500 199,000 21,000 475,500 Total current assets 491,000 Long-term investments 105,000 145,000 Plant and equipment Less accumulated depreciation 870,000 212,500 755,000 191,500 Net plant and equipment 657,500 563,500 Total assets $1,253,500 $1,184,000

Answer 1

Answer- 1)- Net cash provided by operating activities =$35600.
Explanation-

RIVERS COMPANY
STATEMENT OF CASH FLOWS PARTIAL (USING INDIRECT METHOD)
FOR THE YEAR ENDED 31 DECEMBER,2011
Particulars		Amount
		$
Cash flow from operating activities
Net Income		78600
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation	($212500+$45000-$191500)	66000
Gain on sale of investments		-22500
Loss on sale of equipment		7000
Change in operating assets & liabilities
Decrease in accounts receivable		10500
Increase in inventory		-55500
Decrease in prepaid expenses		10500
Decrease in accounts payable		-56000
Decrease in accrued liabilities		-7500
Increase in income taxes payable		4500
Net cash flow from operating activities		35600

2)-

RIVERS COMPANY
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED 31 DECEMBER,2011
Particulars		Amount
		$
Cash flow from operating activities
Net Income		78600
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation	($212500+$45000-$191500)	66000
Gain on sale of investments		-22500
Loss on sale of equipment		7000
Change in operating assets & liabilities
Decrease in accounts receivable		10500
Increase in inventory		-55500
Decrease in prepaid expenses		10500
Decrease in accounts payable		-56000
Decrease in accrued liabilities		-7500
Increase in income taxes payable		4500
Net cash flow from operating activities (a)		35600
Cash Flow from Investing activities
New equipment purchased	($870000+$100000-$755000)	-215000
Long term investments sold		62500
Equipment sold		48000
Net cash Flow from Investing activities (b)		-104500
Cash Flow from Financing activities
Cash dividends paid	($156000+$78600-$197000)	-37600
Common stock purchased		-17500
Bonds issued		105000
Net cash Flow from Financing activities (c)		49900
Net Change in cash c=a+b+c		-19000
Beginning cash balance		39000
Closing cash balance		20000

c)- Free cash flow = ($217000).

Explanation-

Explanation- Free cash flow = Operating cash flow – Capital expenditures- Dividends paid

= $35600-$215000-$37600

= ($217000)