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Mary Walker, president of Rusco Company, considers $24,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements,
Mary Walker, president of Rusco Company, considers $24,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $19,000 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. Rusco Company Comparative Balance Sheet at July 31 This Year Last Year $ 19,000 $ 37,800 204,800 215,200 253, 600 198,400 9,800 19,800 487,200 471,200 102,000 140,000 868,000 754,000 212,000 191,200 656,000 562,800 $ 1,245,200 $ 1,174,000 Assets 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 $ 178,600 8,400 45,200 232, 200 12, 444,200 $ 234,400 15,800 41,000 291,200 108,000 399,200 635,500 620,000 165,500 154,800 801,000 774,800 $ 1,245,200 $ 1,174,000 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 $ 22,000 Loss on sale of equipment (6,800) Income before taxes Income taxes $ 880,000 550,000 330,000 235, 400 94,600 15, 200 109,800 32,920 $ 76,880 Net income 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 $47,200. The equipment originally cost $98,000 and had accumulated depreciation of $44,000. c. Long-term investments that cost $38,000 were sold during the year for $60,000. 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
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