Mary Walker, president of Rusco Company, considers $25,000 to be the 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 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
Assets
Current assets:
Cash and cash equivalents	$	20,000		$	39,000
Accounts receivable		206,000			216,500
Inventory		254,500			199,000
Prepaid expenses		10,500			21,000
Total current assets		491,000			475,500
Long-term investments		105,000			145,000
Plant and equipment		870,000			755,000
Less accumulated depreciation		212,500			191,500
Net plant and equipment		657,500			563,500
Total assets	$	1,253,500		$	1,184,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	179,500		$	235,500
Accrued liabilities		8,500			16,000
Income taxes payable		46,000			41,500
Total current liabilities		234,000			293,000
Bonds payable		215,000			110,000
Total liabilities		449,000			403,000
Stockholders equity:
Common stock		649,100			625,000
Retained earnings		155,400			156,000
Total stockholders' equity		804,500			781,000
Total liabilities and stockholders' equity	$	1,253,500		$	1,184,000

Rusco Company Income Statement For This Year Ended July 31
Sales					$	900,000
Cost of goods sold						562,500
Gross margin						337,500
Selling and administrative expenses						240,750
Net operating income						96,750
Nonoperating items:
Gain on sale of investments	$	22,500
Loss on sale of equipment		(7,000	)			15,500
Income before taxes						112,250
Income taxes						33,650
Net income					$	78,600

The following additional information is available for this year.

1. The company declared and paid a cash dividend.

2. Equipment was sold during the year for $48,000. The equipment originally cost $100,000 and had accumulated depreciation of $45,000.

3. Long-term investments that cost $40,000 were sold during the year for $62,500.

4. 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 companys executive committee is anxious to see how the income statement would appear on a cash basis.

Required:

1. Using the direct method, adjust the companys 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.