Mary Walker, president of Rusco Company, considers $49,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $44,000 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	$ 44,000	$ 67,800
Accounts receivable	234,800	247,700
Inventory	276,100	213,400
Prepaid expenses	27,300	49,800
Total current assets	582,200	578,700
Long-term investments	177,000	265,000
Plant and equipment	918,000	779,000
Less accumulated depreciation	224,500	198,700
Net plant and equipment	693,500	580,300
Total assets	$ 1,452,700	$ 1,424,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 201,100	$ 261,900
Accrued liabilities	10,900	20,800
Income taxes payable	65,200	53,500
Total current liabilities	277,200	336,200
Bonds payable	287,000	138,000
Total liabilities	564,200	474,200
Stockholders equity:
Common stock	775,900	745,000
Retained earnings	112,600	204,800
Total stockholders' equity	888,500	949,800
Total liabilities and stockholders' equity	$ 1,452,700	$ 1,424,000

Rusco Company Income Statement For This Year Ended July 31
Sales		$ 1,380,000
Cost of goods sold		862,500
Gross margin		517,500
Selling and administrative expenses		369,150
Net operating income		148,350
Nonoperating items:
Gain on sale of investments	$ 34,500
Loss on sale of equipment	(11,800)	22,700
Income before taxes		171,050
Income taxes		51,170
Net income		$ 119,880

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 $67,200. The equipment originally cost $148,000 and had accumulated depreciation of $69,000.

3. Long-term investments that cost $88,000 were sold during the year for $122,500.

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.

• Required 1
• Required 2

Using the direct method, adjust the companys 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:
		0
Adjustments to a cash basis:
		0
Selling and administrative expenses
Adjustments to a cash basis:
		0
Income taxes
Adjustments to a cash basis:
Decrease in accounts payable
Increase in income taxes payable		0
Net cash provided by operating activities		$0

Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for this year. (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:
Total cash disbursements		0
		0
Investing activities:
		0
Financing activities:
		0
		0
Beginning cash and cash equivalents
Ending cash and cash equivalents		$0