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	$ 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.