Mary Walker, president of Rusco Company, considers $27,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $22,000 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 31This YearLast YearAssetsCurrent assets:Cash$ 22,000$ 41,400Accounts receivable208,400219,100Inventory256,300200,200Prepaid expenses11,90023,400Total current assets498,600484,100Long-term investments111,000155,000Plant and equipment874,000757,000Less accumulated depreciation213,500192,100Net plant and equipment660,500564,900Total assets$ 1,270,100$ 1,204,000Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable$ 181,300$ 237,700Accrued liabilities8,70016,400Income taxes payable47,60042,500Total current liabilities237,600296,600Bonds payable221,000114,000Total liabilities458,600410,600Stockholders' equity:Common stock663,100635,000Retained earnings148,400158,400Total stockholders' equity811,500793,400Total liabilities and stockholders' equity$ 1,270,100$ 1,204,000

Rusco Company

Income Statement

For This Year Ended July 31Sales$ 940,000Cost of goods sold587,500Gross margin352,500Selling and administrative expenses251,450Net operating income101,050Nonoperating items:Gain on sale of investments$ 23,500Loss on sale of equipment(7,400)16,100Income before taxes117,150Income taxes35,110Net income$ 82,040

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 $49,600. The equipment originally cost $104,000 and had accumulated depreciation of $47,000.
3. Long-term investments that cost $44,000 were sold during the year for $67,500.
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 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, a statement of cash flows for this year.