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 2014. 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 July 31, 2014 and 2013
	2014		2013
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		650,000		710,000
Retained earnings		214,000		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 the Year Ended July 31, 2014
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 the year 2014.

a.	The company declared and paid a cash dividend.
b.	Equipment was sold during the year for $61,600. The equipment had originally cost $134,000 and had accumulated depreciation of $62,000.
c.	Long-term investments that had cost $74,000 were sold during the year for $105,000.
d.	The company did not retire any bonds payable or repurchase any of its common stock.

Because the Cash account decreased so dramatically during 2014, 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 2014 to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.)

2.	Using the data from (1) above and other data from the problem as needed, prepare a statement of cash flows for 2014. (Cash outflows and amounts to be deducted should be indicated with a minus sign.)

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