Question

Mary Walker, president of Rusco Company, considers $37,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $32,000 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
	This Year			Last Year
Assets
Current assets:
Cash and cash equivalents	$	32,000		$	53,400
Accounts receivable		220,400			232,100
Inventory		265,300			206,200
Prepaid expenses		18,900			35,400
Total current assets		536,600			527,100
Long-term investments		141,000			205,000
Plant and equipment		894,000			767,000
Less accumulated depreciation		218,500			195,100
Net plant and equipment		675,500			571,900
Total assets	$	1,353,100		$	1,304,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	190,300		$	248,700
Accrued liabilities		9,700			18,400
Income taxes payable		55,600			47,500
Total current liabilities		255,600			314,600
Bonds payable		251,000			134,000
Total liabilities		506,600			448,600
Stockholders’ equity:
Common stock		719,400			685,000
Retained earnings		127,100			170,400
Total stockholders' equity		846,500			855,400
Total liabilities and stockholders' equity	$	1,353,100		$	1,304,000

 

Rusco Company Income Statement For This Year Ended July 31
Sales					$	1,140,000
Cost of goods sold						712,500
Gross margin						427,500
Selling and administrative expenses						304,950
Net operating income						122,550
Nonoperating items:
Gain on sale of investments	$	28,500
Loss on sale of equipment		(9,400	)			19,100
Income before taxes						141,650
Income taxes						42,410
Net income					$	99,240

 

The following additional information is available for this year.

 

1. The company declared and paid a cash dividend.

2. Equipment was sold during the year for $57,600. The equipment originally cost $124,000 and had accumulated depreciation of $57,000.

3. Long-term investments that cost $64,000 were sold during the year for $92,500.

4. 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.