Mary Walker, president of Rusco Company, considers $47,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $42,000 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. Last Year Rusco Company Comparative Balance Sheet at July 31 This Year Assets Current assets: Cash and cash equivalents $ 42,000 Accounts receivable 232,400 Inventory 274,300 Prepaid expenses 25,900 Total current assets 574,600 Long-term investments 171,000 Plant and equipment 914,000 Less accumulated depreciation 223,500 Net plant and equipment 690,500 Total assets $1,436,100 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 199, 300 Accrued liabilities 10,700 Income taxes payable 63,600 Total current liabilities 273,600 Bonds payable 281,000 Total liabilities 554,600 Stockholders' equity: Common stock 764,000 Retained earnings 117,500 Total stockholders' equity 881,500 Total liabilities and stockholders' equity $1,436,100 $ 65,400 245, 100 212,200 47, 400 570, 100 255,000 777,000 198, 100 578,900 $1,404,000 $ 259,700 20,400 52,500 332,600 134,000 466,600 735,000 202,400 937,400 $1,404,000 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 $ 33,500 Loss on sale of equipment (11,400) Income before taxes Income taxes $1,340,000 837,500 502,500 358, 450 144,050 22,100 166, 150 49, 710 116,440 Net income $ 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 $65,600. The equipment originally cost $144,000 and had accumulated depreciation of $67,000. c. Long-term investments that cost $84,000 were sold during the year for $117,500. d. The company did not retire any bonds payable or repurchase any of its common stock. Because the Cash account decreased so dramatically during this year, the company's executive committee is anxious to see how the income statement would appear on a cash basis. Required: 1. Using direct method, adjust the company's income statement for this year to a cash basis. Rusco Company Statement of Cash Flows For This Year Ended July 31 Operating activities: Cash received from customers $ 1,372,300 Less cash disbursements for: Cost of merchandise purchased Selling and administrative expenses Income taxes 0 1,372,300 Total cash disbursements Net cash used in operating activities Investing activities: Proceeds from sale of investments 144,000 65,600 Proceeds from sale of equipment Additions to property, plant, & equipment 209,600 Financing activities: 0 1,581,900 Beginning cash and cash equivalents Ending cash and cash equivalents $ 1,581,900
