Mary Walker, president of Rusco Company, considers $33,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $28,000 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. Assets Rusco Company Comparative Balance Sheet at July 31 This Year Last Year 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 $ 28,000 $ 48,600 215,600 226,900 203,800 261,700 16,100 30,600 521,400 509,900 129,000 185,000 886,000 763,000 216,500 193,900 669,500 569,100 $ 1,319,900 $ 1,264,000 17,600 45,500 $ 186,700 9,300 $ 244,300 52,400 248,400 307,400 239,000 126,000 487,400 433,400 680,100 665,000 152,400 165,600 832,500 830,600 $ 1,319,900 $ 1,264,000 Rusco Company Income Statement For This Year Ended July 31 Sales $ 1,060,000 Cost of goods sold 662,500 Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments Loss on sale of equipment Income before taxes Income taxes Net income 397,500 283,550 113,950 $ 26,500 (8,600) 17,900 131,850 39,490 $ 92,360 Adjustments to a cash basis: Selling and administrative expenses Adjustments to a cash basis: Income taxes Adjustments to a cash basis: Required 1 Required 2 Assume that during Year 2 Wiley had a $14,000 gain on sale of investments and a $6,000 loss on the sale of equipment. Would these transactions affect the computation in (1) above. No, gains and losses on income statement are ignored under direct method. No, gains and losses on income statement are considered under direct method. Yes, gains and losses on income statement are ignored under direct method. Yes, gains and losses on income statement are considered under direct method. < Required 1 Required 2 > 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 $54,400. The equipment originally cost $116,000 and had accumulated depreciation of $53,000. c. Long-term investments that cost $56,000 were sold during the year for $82,500. 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Using the direct method, adjust the company's income statement for this year to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.) 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: Required 1 Required 2 0 0 0 $ 0 < Required 1 Required 2 > Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for this year. (Cash outflows and amounts to be deducted should be indicated with a minus sign.) Rusco Company Statement of Cash Flows For This Year Ended July 31 Operating 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 < Required 1 0 0 0 0 0 $ 0 Required 2 >