Mary Walker, president of Rusco Company, considers $45,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $40,000 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	$	40,000	$	63,000
Accounts receivable		230,000		242,500
Inventory		272,500		211,000
Prepaid expenses		24,500		45,000
Total current assets		567,000		561,500
Long-term investments		165,000		245,000
Plant and equipment		910,000		775,000
Less accumulated depreciation		222,500		197,500
Net plant and equipment		687,500		577,500
Total assets	$	1,419,500	$	1,384,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	197,500	$	257,500
Accrued liabilities		10,500		20,000
Income taxes payable		62,000		51,500
Total current liabilities		270,000		329,000
Bonds payable		275,000		130,000
Total liabilities		545,000		459,000
Stockholders equity:
Common stock		657,500		725,000
Retained earnings		217,000		200,000
Total stockholders' equity		874,500		925,000
Total liabilities and stockholders' equity	$	1,419,500	$	1,384,000

Rusco Company Income Statement For the Year Ended July 31, 2014
Sales		$	1,300,000
Cost of goods sold			812,500
Gross margin			487,500
Selling and administrative expenses			347,750
Net operating income			139,750
Nonoperating items:
Gain on sale of investments	$32,500
Loss on sale of equipment	(11,000)		21,500
Income before taxes			161,250
Income taxes			48,250
Net income		$	113,000

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 $64,000. The equipment had originally cost $140,000 and had accumulated depreciation of $65,000.
c.	Long-term investments that had cost $80,000 were sold during the year for $112,500.
d.	The company did not retire any bonds payable or repurchase any of its common stock.

Because the Cash account decreased so dramatically during 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.)