Question

Mary Walker, president of Rusco Company, considers $30,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $25,000 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. Last Year Rusco Company Comparative Balance Sheet at July 31 This Year Assets Current assets: Cash and cash equivalents $ 25,000 Accounts receivable 212,000 Inventory 259,000 Prepaid expenses 14,000 Total current assets 510,000 Long-term investments 120,000 Plant and equipment 880,000 Less accumulated depreciation 215,000 Net plant and equipment 665,000 Total assets $1,295,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 184,000 Accrued liabilities 9,000 Income taxes payable 50,000 Total current liabilities 243,000 Bonds payable 230,000 Total liabilities 473,000 Stockholders' equity: Common stock 677,600 Retained earnings 144,400 Total stockholders' equity 822,000 Total liabilities and stockholders' equity $1,295,000 $ 45,000 223,000 202,000 27,000 497,000 170,000 760,000 193,000 567, 000 $1,234,000 $ 241,000 17,000 44,000 302,000 120,000 422,000 650,000 162,000 812,000 $1,234,000 Rusco Company Income Statement For This Year Ended July 31 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items : Gain on sale of investments $25,000 Loss on sale of equipment (8,000) Income before taxes Income taxes Net income $1,000,000 625,000 375,000 267,500 107,500 17,000 124,500 37, 300 87,200 $

Answer 1

Rusco Company Statement of Cashflows For the period ending This Year Cashflow from Operating Activity Collection from Customers (1000000+223000-212000) Payments to suppliers (625000+259000-202000+241000-184000) Payments for expenses (195500+14000-27000+17000-9000) Income taxes paid (37300+44000-50000) Cash used for Operating Activty 1011000 -739000 -190500 -31300 50200 Cashflow from Investing Activity Equipment sold Long Term Investments sold Equipment Purchased Cash used for Investing Activty 52000 75000 -230000 -103000 110000 27600 -104800 Cashflow from Financing Activity Bonds issued (230000-120000) Common Stock issued (677600-650000) Dividends paid (162000+87200-144400) Cash generated from Financing Activty Net Decrease in Cash Beginning Cash Balance Ending Cash Balance 32800 -20000 45000 25000 Selling and administrative expense = 267500 - depreciation 72000 = 195500

Plant and Equipment 760000 Sale 230000 Bal Cash 110000 Bal 990000 880000 990000 Sale Accum. Depreciation 50000 Bal Depreciation 215000 265000 193000 72000 Bal 265000 Plant and Equipm Sale of Equipment 110000 Accum. Depreciation Cash Loss on sale of equip. 110000 50000 52000 8000 110000