Mary Walker, president of Rusco Company, considers $30,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $25,000 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. Last Year Rusco Company Comparative Balance Sheet at July 31 This Year Assets Current assets: Cash $ 25,000 Accounts receivable 212,000 Inventory 259,000 Prepaid expenses 14,000 Total current assets 510,000 Long-term investments 120,000 Plant and equipment 880,000 Less accumulated depreciation 215,000 Net plant and equipment 665,000 Total assets $1,295,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 184,000 Accrued liabilities 9,000 Income taxes payable 50,000 Total current liabilities 243,000 Bonds payable 230,000 Total liabilities 473,000 Stockholders' equity: Common stock 677,600 Retained earnings 144, 400 Total stockholders' equity 822,000 Total liabilities and stockholders' equity $1,295,000 $ 45,000 223,000 202,000 27,000 497,000 170,000 760,000 193,000 567,000 $1,234,000 $ 241,000 17,000 44,000 302,000 120,000 422,000 650,000 162,000 812,000 $1,234,000 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 $ 25,000 Loss on sale of equipment (8,000) Income before taxes Income taxes Net income $1,000,000 625,000 375,000 267,500 107,500 17,000 124,500 37,300 87,200 $ 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 $52,000. The equipment originally cost $110,000 and had accumulated depreciation of $50,000. c. Long-term investments that cost $50,000 were sold during the year for $75,000. 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 vear. 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: uperaung 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
