Problem 14A-5 Prepare and Interpret a Statement of Cash Flows [LO14-1, LO14-4]

Mary Walker, president of Rusco Company, considers $35,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $30,000 in cash was available at the end of 2014. 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 July 31,2014 and 2013 2014 2013 Assets Current assets: 5 30,000 $ 51,000 218,000 229,500 283,500 205,000 33,000 Accounts receiva ble Inventory 17,500 Prepaid expenses Total current assets Long-term investments Plantand equipment 529,000 518,500 35,000 195,000 890,000 765,000 217,500 94,500 Less accumulated depreciation Net plantand equipment Total assets 672,500 570,500 1,336,500 $1284,000 Liabilities and Stockholders' Equity Current liabilities: 5 188,500 246,500 18,000 48,500 Accounts payable Accrued liabilities Income taxes payable 9,500 54,000 Total current liabilities Bonds payable 252,000 245,000 311,000 130,000 Total liabilities 497,000 441,000 Common stock Retained earnings 32,500 207,000 75,000 Total stockholders equity Total liabilities and stockholders equity 188,000 839,500 843,000 1,336,500 $1284,000 Rusco Company Income Statement For the Year Ended July 31,2014 $1,100,000 887,500 Cost of goods sold Gross margin Selling and administrative expenses 412,500 294,250 Netoperating income Nonoperating items: 118250 Gain on sale of investments $27,500 Loss on sale ofequipment (9,000) 18,500 Income before taxes Income tawes 136,750 40,950 Netincome 5 95,800