Mary Walker, president of Rusco Company, considers $50,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $45,000 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. Assets Rusco Company Comparative Balance Sheet at July 31 This Year Last Year Current assets: Cash 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 Rusco Company Income Statement $ 45,000 $ 69,000 236,000 277,000 28,000 249,000 214,000 51,000 586,000 583,000 180,000 270,000 920,000 780,000 225,000 199,000 695,000 581,000 $ 1,461,000 $ 1,434,000 $ 202,000 $ 263,000 11,000 21,000 66,000 54,000 279,000 338,000 290,000 140,000 569,000 478,000 778,100 750,000 113,900 206,000 892,000 956,000 $ 1,461,000 $ 1,434,000 Gross margin Selling and administrative expenses Net operating income For This Year Ended July 31 Sales $ 1,400,000 Cost of goods sold 875,000 525,000 374,500 150,500 $ 35,000 (12,000) 23,000 173,500 51,900 $ 121,600 Nonoperating items: Gain on sale of investments Loss on sale of equipment Income before taxes Income taxes 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 $68,000. The equipment originally cost $150,000 and had accumulated depreciation of $70,000. c. Long-term investments that cost $90,000 were sold during the year for $125,000. d. The company did not retire any bonds payable or repurchase any of its common stock. Because the Cash account decreased so dramatically during 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.