Mary Walker, president of Rusco Company, considers $23,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $18,000 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 $18,000 $36,600
Accounts receivable 203,600 213,900
Inventory 252,700 197,800
Prepaid expenses 9,100 18,600
Total current assets 483,400 466,900
Long-term investments 99,000 135,000
Plant and equipment 866,000 753,000
Less accumulated depreciation 211,500 190,900
Net plant and equipment 654,500 562,100
Total assets $1,236,900 $1,164,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $177,700 $233,300
Accrued liabilities 8,300 15,600
Income taxes payable 44,400 40,500
Total current liabilities 230,400 289,400
Bonds payable 209,000 106,000
Total liabilities 439,400 395,400
Stockholders’ equity:
Common stock 630,400 615,000
Retained earnings 167,100 153,600
Total stockholders' equity 797,500 768,600
Total liabilities and stockholders' equity $1,236,900 $1,164,000
Rusco Company
Income Statement
For This Year Ended July 31
Sales $860,000
Cost of goods sold 537,500
Gross margin 322,500
Selling and administrative expenses 230,050
Net operating income 92,450
Non-operating items:
Gain on sale of investments $21,500
Loss on sale of equipment (6,600 ) 14,900
Income before taxes 107,350
Income taxes 32,190
Net income $75,160
The following additional information is available for this year.
The company declared and paid a cash dividend.
Equipment was sold during the year for $46,400.
The equipment originally cost $96,000 and had accumulated depreciation of $43,000.
Long-term investments that cost $36,000 were sold during the year for $57,500.
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.