Problem 13A-5 Prepare and Interpret a Statement of Cash Flows [LO13-1, LO13-4] Mary Walker, president of Rusco Company, considers $25,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $20,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued to Ms. Walker both bonds and common stock, the sharp decline in cash is puzzling Rusco Company Comparative Balance Sheet at July 31 This Year Last Year Assets Current assets: Cash and cash equivalents 20,00039,000 216,500 199,000 Accounts receivable 206,000 254,500 Inventory Prepaid expenses Total current assets Long-term investments Plant and equipment 10,5002000 491,000eo 475,500 00145,000 870,000 105,000 755,000 Less accumulated depreciation Net plant and equipment Total assets 212,500191,500 657,5005631300 $1,253,500 $1,184,000 Liabilities and Stockholders Equity Current liabilities: 179,500 8,500 46,000 234,000 215,000 449,000 235,500 16,000 41,500 293,000 110,000 403,000 Accounts payable Accrued liabilities Income taxes payable Total current liabilities Bonds payable Total liabilities Stockholders' equity: 649,100 155,400 625,000 156,000 804,500781,000 $1,253,500 1,184,000 Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity Rusco Company Income Statement For This Year Ended July 31 $900,000 562.500 337,500 240,750 96,750 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: $22,500 Gain on sale of investments Loss on sale of equipment Income before taxes Income taxes Net income -1710001 15,500 112,250 33,650 $ 78,600 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 $48,000. The equipment originally cost $100,000 and had accumulated depreciation of $45,000 c Long-term investments that cost $40,000 were sold during the year for $62,500. 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 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 Rusco Company Direct Method of Determining the Net Cash Flows from Operating Activities Adjustments to a cash basis: Adjustments to a cash basis: Selling and administrative expenses Adjustments to a cash basis: Income taxes Adjustments to a cash basis: 0 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 Investing activities: Financing activities