Mary Walker, president of Rusco Company, considers $37,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $32,000 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 $ 32,000 $ 53, 400 220,400 232,100 265,300 206, 200 18,900 35, 400 536, 600 527,100 141,000 205,000 894,000 767,000 218,500 195, 100 675,500 571,900 $ 1,353,100 $ 1,304,000 Assets 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 $ 190, 300 9, 700 55,600 255,600 251,000 506,600 $ 248, 700 18,400 47,500 314,600 134,000 448,600 719,400 685,000 127, 100 170, 400 846, 500 855, 400 $ 1,353,100 $ 1,304,000 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 $ 28,500 Loss on sale of equipment (9,400) Income before taxes Income taxes $ 1,140,000 712,500 427,500 304,950 122,550 19, 100 141,650 42,410 $ 99,240 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 $57,600. The equipment originally cost $124,000 and had accumulated depreciation of $57,000. c. Long-term investments that cost $64,000 were sold during the year for $92,500. 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. Rusco Company Direct Method of Determining the Net Cash flows from Operating activities Adjustments to a cash basis: 0 Adjustments to a cash basis: 0 0 Selling and administrative expenses Adjustments to a cash basis: 0 Income taxes Adjustments to a cash basis: 0 $ 0 Required 1 Required 2 > For This Year Ended July 31 Operating activities: Cash received from customers Less cash disbursements for: Total cash disbursements 0 0 Investing activities: 0 Financing activities: 0 0 Beginning cash and cash equivalents Ending cash and cash equivalents $ 0
