Refer to the financial statements for Rusco Company in Problem 15–13. 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.

3. Briefly explain the major reasons for the sharp decline in cash during this year.

Data From Problem 15-13:

Transcribed Image Text:

Rusco Company Income Statement For This Year Ended July 31 $500,000 300,000 Sales..... Cost of goods sold Gross margin . 200,000 Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments Loss on sale of equipment 158,000 42,000 $10,000 (2,000) 8,000 Income before taxes 50,000 Income taxes 20,000 Net income $ 30,000