Mary Walker, president of Rusco Company, considers $46,000 to be the minimum cash balance for operating...

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Mary Walker, president of Rusco Company, considers $46,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $41,000 in cash was available at the end of 2014. 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. Assets Current assets: Cash Accounts receivable Inventory Prepaid expenses Total current assets Long-term investments Plant and equipment Less accumulated depreciation Net plant and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Income taxes payable Rusco Company Comparative Balance Sheet July 31, 2014 and 2013 Total current liabilities Bonds payable Total liabilities Stockholders' equity: Common stock Retained earnings Total stockholders' equity $ 2014 41,000 $ 231,200 273,400 25,200 570,800 168,000 912,000 223,000 689,000 250,000 776,000 197,800 578,200 $1,427,800 $ 1,394,000 $ 198,400 10,600 62,800 271,800 278,000 549,800 2013 660,000 218,000 878,000 64,200 243,800 211,600 46,200 565,800 $ 258,600 20,200 52,000 330,800 132,000 462,800 730,000 201,200 931,200 Total liabilities and stockholders' equity Rusco Company Income Statement For the Year Ended July 31, 2014 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments Loss on sale of equipment $ 1,427,800 $ 1,394,000 Income before taxes Income taxes Net income $1,320,000 825,000 $33,000 (11,200) 495,000 353,100 141,900 21,800 163,700 48,980 $ 114,720 The following additional information is available for the year 2014. a. The company declared and paid a cash dividend. b. Equipment was sold during the year for $64,800. The equipment had originally cost $142,000 and had accumulated depreciation of $66,000. c. Long-term investments that had cost $82,000 were sold during the year for $115,000. d. The company did not retire any bonds payable or repurchase any of its common stock. Because the Cash account decreased so dramatically during 2014, 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 2014 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: Cost of goods sold Adjustments to a cash basis: Selling and administrative expenses Adjustments to a cash basis: Income taxes Adjustments to a cash basis: $ 0 0 0 0 0 2. Using the data from (1) above and other data from the problem as needed, prepare a statement of cash flows for 2014. (Cash outflows and amounts to be deducted should be indicated with a minus sign.) Operating activities: Cash received from customers Less cash disbursements for: Rusco Company Statement of Cash Flows For the Year Ended July 31, 2014 Total cash disbursements Investing activities: Financing activities: Beginning cash and cash equivalents Ending cash and cash equivalents $ 0 0 0 0 0 0 Mary Walker, president of Rusco Company, considers $46,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $41,000 in cash was available at the end of 2014. 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. Assets Current assets: Cash Accounts receivable Inventory Prepaid expenses Total current assets Long-term investments Plant and equipment Less accumulated depreciation Net plant and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Income taxes payable Rusco Company Comparative Balance Sheet July 31, 2014 and 2013 Total current liabilities Bonds payable Total liabilities Stockholders' equity: Common stock Retained earnings Total stockholders' equity $ 2014 41,000 $ 231,200 273,400 25,200 570,800 168,000 912,000 223,000 689,000 250,000 776,000 197,800 578,200 $1,427,800 $ 1,394,000 $ 198,400 10,600 62,800 271,800 278,000 549,800 2013 660,000 218,000 878,000 64,200 243,800 211,600 46,200 565,800 $ 258,600 20,200 52,000 330,800 132,000 462,800 730,000 201,200 931,200 Total liabilities and stockholders' equity Rusco Company Income Statement For the Year Ended July 31, 2014 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments Loss on sale of equipment $ 1,427,800 $ 1,394,000 Income before taxes Income taxes Net income $1,320,000 825,000 $33,000 (11,200) 495,000 353,100 141,900 21,800 163,700 48,980 $ 114,720 The following additional information is available for the year 2014. a. The company declared and paid a cash dividend. b. Equipment was sold during the year for $64,800. The equipment had originally cost $142,000 and had accumulated depreciation of $66,000. c. Long-term investments that had cost $82,000 were sold during the year for $115,000. d. The company did not retire any bonds payable or repurchase any of its common stock. Because the Cash account decreased so dramatically during 2014, 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 2014 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: Cost of goods sold Adjustments to a cash basis: Selling and administrative expenses Adjustments to a cash basis: Income taxes Adjustments to a cash basis: $ 0 0 0 0 0 2. Using the data from (1) above and other data from the problem as needed, prepare a statement of cash flows for 2014. (Cash outflows and amounts to be deducted should be indicated with a minus sign.) Operating activities: Cash received from customers Less cash disbursements for: Rusco Company Statement of Cash Flows For the Year Ended July 31, 2014 Total cash disbursements Investing activities: Financing activities: Beginning cash and cash equivalents Ending cash and cash equivalents $ 0 0 0 0 0 0

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