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Mary Walker, president of Rusco Company, considers $46,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements,

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Mary Walker, president of Rusco Company, considers $46,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $41,000 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 L ast Year 41,000 231,200 273,400 25, 200 570, 800 168,000 912,000 223,000 689,000 $1,427,800 $ 64,200 243,800 211,600 46,200 565,800 250,000 776,000 197,800 578, 200 $1,394,000 Assets Current assets: Cash and cash equivalents 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 $ 198,400 10,600 62,800 271,800 278,000 549,800 258, 600 20,200 52,000 330,800 132,000 462,800 763,200 114,800 878,000 $1,427,800 730,000 201,200 931,200 $1,394,000 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 S 33,00 Loss on sale of equipment (11,280) Income before taxes Income taxes Net Income $1,320,888 825,000 495,000 353,100 141,900 21, see 163.zee 48,988 114,720 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 $64,800. The equipment originally cost $142.000 and had accumulated depreciation of $66.000 c. Long-term investments that cost $82,000 were sold during the year for $115,000. d. The company did not retire any bonds payable or repurchase ony 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. Using the direct method, adjust the company's income statement for this year to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.) Rusco Company Direct Method of Determining the Net Cash Flows from Operating Activities Sales Adjustments to a cash basis: Decrease in accounts receivable . Cost of goods sold Adjustments to a cash basis: Increase in inventory Decrease in accounts payable 1 Selling and administrative expenses Adjustments to a cash basis: Decrease in prepaid expenses Decrease in accrued liabilities Depreciation / Income taxes Adjustments to a cash basis: Increase in income taxes payable / / Net cash provided by operating activities and (Cash outflows and amounts to be deducted should be indicated with a minus sign.) Rusco Company Statement of Cash Flows For This Year Ended July 31 Operating activities: Cash received from customers Less cash disbursements for: Cost of merchandise purchased Selling and administrative expenses Income taxes the Total cash disbursements Net cash provided by operating activities Investing activities in Proceeds from sale of investments Proceeds from sale of equipment Additions to property, plant, & equipment Net cash used in financing activities Financing activities Issuance of bonds payable Issuance of common stock Cash dividends paid Net cash used in finanong activities Net debease in cash and can equivalents Beginning cash and cash Ending cash and cash e valents valents

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