Mary Walker, president of Rusco Company, considers $42,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $37,000 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:
Cash and cash equivalents	$	37,000		$	59,400
Accounts receivable		226,400			238,600
Inventory		269,800			209,200
Prepaid expenses		22,400			41,400
Total current assets		555,600			548,600
Long-term investments		156,000			230,000
Plant and equipment		904,000			772,000
Less accumulated depreciation		221,000			196,600
Net plant and equipment		683,000			575,400
Total assets	$	1,394,600		$	1,354,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	194,800		$	254,200
Accrued liabilities		10,200			19,400
Income taxes payable		59,600			50,000
Total current liabilities		264,600			323,600
Bonds payable		266,000			124,000
Total liabilities		530,600			447,600
Stockholders equity:
Common stock		744,400			710,000
Retained earnings		119,600			196,400
Total stockholders' equity		864,000			906,400
Total liabilities and stockholders' equity	$	1,394,600		$	1,354,000

Rusco Company Income Statement For This Year Ended July 31
Sales					$	1,240,000
Cost of goods sold						775,000
Gross margin						465,000
Selling and administrative expenses						331,700
Net operating income						133,300
Nonoperating items:
Gain on sale of investments	$	31,000
Loss on sale of equipment		(10,400	)			20,600
Income before taxes						153,900
Income taxes						46,060
Net income					$	107,840

The following additional information is available for this year.

1. The company declared and paid a cash dividend.

2. Equipment was sold during the year for $61,600. The equipment originally cost $134,000 and had accumulated depreciation of $62,000.

3. Long-term investments that cost $74,000 were sold during the year for $105,000.

4. 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 companys executive committee is anxious to see how the income statement would appear on a cash basis.

Required:

1. Using the direct method, adjust the companys 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.