Mary Walker, president of Rusco Company, considers $35,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $30,000 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: $30,000 218,000 263,500 17,500 Cash $51,000 229,500 205,000 33,000 529,000518,500 195,000 765,000 217,500194,500 672,500570,500 $1,284,000 Accounts receivable Inventory Prepaid expenses Total current assets Long-term investments Plant and equipment 135,000 890,000 Less accumulated depreciation Net plant and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: $1,336,500 $ 188,500 246,500 18,000 Accounts payable Accrued liabilities 9,500 252,000 497,000 703,600 4,00040300 46,500 Income taxes payable Total current liabilities Bonds payable Total liabilities Stockholders' equity: 311,000 245,000130,000 441,000 675,000 135,9006000 839,50083000 Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 843,000 $1,284,000 $1,336,500 Rusco Company Income Statement For This Year Ended July 31 $1,100,000 687,500 412,500 294,250 118,250 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments $27,500 (9,000)18,500 136,750 40,950 $95,800 Loss on sale of equipment Income before taxes Income taxes Net income 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 $56,000. The equipment originally cost $120,000 and had accumulated depreciation of $55,000 c. Long-term investments that cost $60,000 were sold during the year for $87,500 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 Requirec 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 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 Sales Adjustments to a cash basis: Decrease in accounts receivable Cost of goods sold Adjustments to a cash basis: Increase in inventory Decrease in accounts payable Selling and administrative expenses Adjustments to a cash basis: Income taxes Adjustments to a cash basis: Statement of Cash Flows For the Year Ended July 31, 2014 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