Mary Walker, president of Rusco Company, considers $21,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $16,000 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. Assets Rusco Company Comparative Balance Sheet at July 31 This Year Last Year Current assets: Cash Accounts receivable Inventory Prepaid expenses Total current assets Long-term investments Plant and equipment Less accumulated depreciation Net plant and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Income taxes payable Total current liabilities Bonds payable Total liabilities Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 16,000 201,200 250,900 $ 34,200 211,300 196,600 7,700 16,200 475,800 458,300 93,000 125,000 862,000 751,000 210,500 190,300 560,700 651,500 $ 1,220,300 $ 1,144,000 $ 175,900 8,100 $ 231,100 15,200 42,800 39,500 226,800 285,800 203,000 102,000 429,800 387,800 621,800 605,000 168,700 151,200 790,500 756,200 $ 1,220,300 $ 1,144,000 Rusco Company Income Statement For This Year Ended July 31 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments Loss on sale of equipment Income before taxes Income taxes Net income $ 820,000 512,500 307,500 219,350 88,150 $ 20,500 (6,200) 14,300 102,450 30,730 $ 71,720 The following additional information is available for this year. a. The company declared and paid a cash dividend. b. Equipment was sold during the year for $44,800. The equipment originally cost $92,000 and had accumulated depreciation of $41,000. c. Long-term investments that cost $32,000 were sold during the year for $52,500. d. The company did not retire any bonds payable or repurchase any of its common stock. Because the Cash account decreased so dramatically during this year, the company's executive committee is anxious to see how the income statement would appear on a cash basis. Required: 1. Using the direct method, adjust the company's income statement for this year to a cash basis. 2. Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for this year. Required 1 Using the direct method, adjust the company's income statement for this year to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.) Rusco Company Direct Method of Determining the Net Cash flows from Operating activities Sales 820.000- Adjustments to a cash basis Decrease in accounts receivable 9 10,100 G 830.100 Cost of goods sold 10 Adjustments to a cash basis Increase in inventory $12.500 54.300 Decrease in accounts payable Selling and administrative expenses Adjustments to a cash bas Decrease in prepaid expenses Decrease in accrued liabilit Depreciation Income taxes Adjustments to a cash ba Required 1 Required 2 00 600 55,200 622.000 219.350 O (8.500) 7,100 O 217.950 0 9.850) Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for this year (Cash outflows and amounts to be deducted should be indicated with a minus sign.) Operating activities Rusco Company Statement of Cash Flows For This Year Ended July 31 Cash received from customers Less cash disbursements for Cost of merchandise purchased Selling and administrative expenses Income taxes Total cash disbursements Net cash provided by operating activities Investing activities Additions to plant and equipment Proceeds from sale of equipment 000 000 Net cash used for investing activities 9 Financing activities Issuance of bonds payable 9 Cash dividends 0 Net decrease in cash 0 Beginning cash and cash equivalents Ending cash and cash equivalents