Question

Mary Walker, president of Rusco Company, considers $26,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $21,000 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 Last Year 21,000 207,200 255.400 11,200 494, 800 100,000 872,000 213,000 659,000 $1,261,800 40,200 217.800 199.600 22,200 479,800 150,000 756,000 191,800 564,200 $1,194.000 Assets Current assets Cash and cash equivalents 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 $ $ 180, 400 8.600 16.00 235,800 218.000 453,800 236,600 16.200 42.000 290.000 112.000 406.800 650.400 157,600 1908)000 $1,261,800 630.000 157.200 787,200 $1,194.000

Answer 1

1.

Rusco Company
Direct Method of Determining the Net Cash flows from Operating activities
Sales	920000
Adjustments to a cash basis:
Decrease in accounts receivable	10600
Cash received from customers		930600
Cost of goods sold	575000
Adjustments to a cash basis:
Increase in inventory	55800
Decrease in accounts payable	56200
Cash disbursements for inventory purchases		687000
Selling and administrative expenses	246100
Adjustments to a cash basis:
Depreciation expense [$213000 - ($191800 - $46000)]	-67200
Decrease in prepaid expenses	-11000
Decrease in accrued liabilities	7600
Cash disbursements for selling and administrative expenses		175500
Income taxes	34380
Adjustments to a cash basis:
Increase in income taxes payable	-4800
Cash disbursements for income taxes		29580
Net cash provided by operating activities		38520

2.

Rusco Company
Statement of Cash Flows
For This Year Ended July 31
Operating activities:
Cash received from customers	930600
Less cash disbursements for:
Inventory purchases	-687000
Selling and administrative expenses	-175500
Income taxes	-29580
Total cash disbursements	-892080
Net cash provided by operating activities		38520
Investing activities:
Sale proceeds from equipment	48800
Sale proceeds from long-term investments	65000
Purchase of equipment [$872000 - ($756000 - $102000)]	-218000
Net cash used for investing activities		-104200
Financing activities:
Issuance of bonds payable	106000
Issuance of common stock	20400
Payment of cash dividends ($157200 + $80320 - $157600)	-79920
Net cash provided by financing activities		46480
Net decrease in cash		-19200
Beginning cash and cash equivalents		40200
Ending cash and cash equivalents		21000