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.

The company declared and paid a cash dividend.
Equipment was sold during the year for $57,600. The equipment originally cost $124,000 and had accumulated depreciation of $57,000.

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

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.