Mary Walker, president of Rusco Company, considers $22,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $17,000 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 $ 17,000 202,400 251,800 $ 35,400 212,600 197,200 8,400 17,400 479,600 462,600 96,000 130,000 864,000 752,000 211,000 190,600 653,000 561,400 $1,228,600 $ 1,154,000 $176,800 $ 232,200 8,200 15,400 23,600 40,000 228,600 287,600 206,000 104,000 434,600 391,600 642,300 610,000 151,700 152,400 794,000 762,400 $ 1,228,600 $ 1,154,000 Sales Cost of goods sold Gross margin Rusco Company Income Statement For This Year Ended July 31 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 $840,000 525,000 315,000 224,700 90,300 $ 21,000 (6,400) 14,600 The following additional information is available for this year. a. The company declared and paid a cash dividend. 104,900 31,460 $ 73,440 b. Equipment was sold during the year for $45,600. The equipment originally cost $94,000 and had accumulated depreciation of $42,000. c. Long-term investments that cost $34,000 were sold during the year for $55,000. 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. 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 Adjustments to a cash basis: Adjustments to a cash basis: Selling and administrative expenses Adjustments to a cash basis: Income taxes Adjustments to a cash basis: 0 0 0 $ 0 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.) Rusco Company Statement of Cash Flows For This Year Ended July 31 Operating activities: Cash received from customers Less cash disbursements for: Total cash disbursements Investing activities: Financing activities: Beginning cash and cash equivalents Ending cash and cash equivalents 0 0 0 0 0 $ 0