Mary Walker, president of Rusco Company, considers $29,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $24,000 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 Last Year 02 Rusco Company Comparative Balance Sheet at July 31 This Year Assets Current assets: Cash $ 24,000 Accounts receivable 210,800 Inventory 258,100 Prepaid expenses 13,300 Total current assets 506, 200 Long-term investments 117,000 Plant and equipment 878,000 Less accumulated depreciation 214,500 Net plant and equipment 663,500 Total assets $1,286,700 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 183,100 Accrued liabilities 8,900 Income taxes payable 49,200 Total current liabilities 241,200 Bonds payable 227,000 Total liabilities 468,200 Stockholders' equity: Common stock 669,500 Retained earnings 149,000 Total stockholders' equity 818,500 Total liabilities and stockholders' equity $1,286,700 $ 43,800 221,700 201,400 25,800 492,700 165,000 759,000 192,700 566,300 $1,224,000 1 $ 239,900 16,800 43,500 300,200 118,000 418,200 645,000 160,800 805,800 $1,224,000 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 $24,500 Loss on sale of equipment (7,800) Income before taxes Income taxes Net income $980,000 612,500 367,500 262,150 105,350 16,700 122,050 36,570 $ 85,480 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 $51,200. The equipment originally cost $108,000 and had accumulated depreciation of $49,000. c. Long-term investments that cost $48,000 were sold during the year for $72,500. 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