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 This Year Last Year Assets Current assets: $ 21,000 207,200 255,400 11,200 $40,200 217,800 199,600 Cash Accounts receivable Inventory Prepaid expenses Total current assets Long-term investments Plant and equipment 22,200 21200 494,800479,800 108,000150,000 756,000 213,000191,800 659,000564,200 $1,194,000 872,000 Less accumulated depreciation Net plant and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: $1,261,800 Accounts payable $236,600 16,200 42,000 294,800 218,.000112,000 406,800 180,400 8,600 46,800 235,800 Accrued liabilities Income taxes payable Total current liabilities Bonds payable Total liabilities Stockholders' equity: 453,800 650,400 157 , 600 630,000 157,200 08,000787,200 $1,194,000 Common stock Retained earnings -i Total stockholders' equity Total liabilities and stockholders' equity $1,261,800 Rusco Company Income Statement For This Year Ended July 31 $920,000 575,000 345,000 246,100 98,900 Sales Cost of goods sold Gross marqin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments $23,000 (7,200) 15,800 114,700 34,380 $80,320 Loss on sale of equipment Income before taxes Income taxes Net income 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 $48,800. The equipment originally cost $102,000 and had accumulated depreciation of $46,000 C. Long-term investments that cost $42,000 were sold during the year for $65,000 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. Required 1Required2 Using the direct method, adjust the company's income statement for this year to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.) Rusco Company Direct Method of Determining the Net Cash flows from Operating activities Sales Adjustments to a cash basis: Adjustments to a cash basis Selling and administrative expenses Adjustments to a cash basis: ncome taxes Adjustments to a cash basis Required Required 2 Required 1Required 2 Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for this year. (Cash outflows and amounts to be deducted should be indicated with a minus sign.) Rusco Company Statement of Cash Flows For the Year Ended July 31, 2014 Operating activities: Cash received from customers Less cash disbursements for: $65,000 48,800 172,000 Total cash disbursements 285,800 285,800 Investing activities Financing activities 285,800 Beginning cash and cash equivalents Ending cash and cash equivalents $ 285,800

Answer 1

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Naming covention is not available, can be slightly different: Solution: 1) Note: Ignore the blank unused lines: Particulars Sales Adjustment to a cash basis: Add: Decrease in Accounts Receivable unt ()2 Note: Ignore the blank unused rows Cash flow Statement Direct Method 920000 Amount (S) 10,600 Particulars Cash flow from Operating Activities: Cash received from customers Less: Cash disbursement for: Cost of Merchandise purchased Seling and admin. Expenses ncome taxes Total Cash Disbursements Net Cash Investing Activities: Proceed from Sale of Equipment Proceed from Sale of Long term investments Addition to Plant and Equipment (872000) (756000-102000)218000 Net Cash used for Investing Activities (B) 930600 Cost of goods sold Adjustment to a cash basis Add: Decrease in Accounts payable Add: Increase in Inventory 575000 930600 $ 56,200 $ 55,800 687000 175500 S 29,580 687000 246100 Selling and admin. Expenses Adjustmet to a cash basis Les: Depreciation (213000) (191800-46000) -67,200 Less: Decrease in Prepaid expenses Add: Decrease in Accrued liabilities 892080 S 38,520 vided by Operating Activities (A $ -11,000 $7,600 48800 65000 175500 $ 34,380 Income tax Expense Adjustment to a cash basis: Less: Increase in Income tax Payable 1042 Cash Flow from Financing Activities: Issuance of Common stock Issuance of Bonds Payable Cash Dividend paicd Net Cash used for Financing Activities-C) Net Decrease in Cash (A+B+C) Beginning Cash and cash equivalents Ending Cash and cash equivalents -4800 29,580 38,520 $ 20,400 Net Cash flow from Operating activities $ -79,920 (157600)-(157200+80320) $ 46,480 $ -19,200 $ 40,200 21,000