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Mary Walker, president of Rusco Company, considers $22,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $17,000 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. Assets Current assets: Cash Accounts receivable Inventory Prepaid expenses Total current assets Rusco Company Comparative Balance Sheet at July 31 This Year Last Year $ 17,000 202,400 251,800 8,400 479,600 $ 35,400 212,600 197,200 17,400 462,600

Mary Walker, president of Rusco Company, considers $22,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $17,000 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. Assets Current assets: Cash Accounts receivable Inventory Prepaid expenses Total current assets Rusco Company Comparative Balance Sheet at July 31 This Year Last Year $ 17,000 202,400 251,800 8,400 479,600 $ 35,400 212,600 197,200 17,400 462,600

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Mary Walker, president of Rusco Company, considers $22,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $17,000 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. 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 Rusco Company Comparative Balance Sheet at July 31 Income taxes payable Total current liabilities Bonds payable Total liabilities. Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity Rusco Company Income Statement For This Year Ended July 31 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 Income before taxes Income taxes Net income This Year $ 17,000 202,400 251,800 8,400 $ 35,400 212,600 197,200 17,400 462,600 130,000 752,000 190,600 561,400 $1,228,600 $ 1,154,000 479,600 96,000 864,000 211,000 653,000 $ 176,800 8,200 43,600 3,600 206,000 434,600 Last Year $ 21,000 (6,400) 642,300 610,000 151,700 152,400 794,000 762,400 $ 1,228,600 $ 1,154,000 The following additional information is available for this year. $ 232,200 15,400 40,000 287,600 104,000 391,600 $ 840,000 525,000 315,000 224,700 90,300 14,600 104,900 31,460 $ 73,440 a. The company declared and paid a cash dividend. b. Equipment was sold during the year for $45,600. The equipment originally cost $94,000 and had accumulated depreciation of $42,000. c. Long-term investments that cost $34,000 were sold during this year for $55,000. 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.
Transcribed Image Text:Mary Walker, president of Rusco Company, considers $22,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $17,000 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. 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 Rusco Company Comparative Balance Sheet at July 31 Income taxes payable Total current liabilities Bonds payable Total liabilities. Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity Rusco Company Income Statement For This Year Ended July 31 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 Income before taxes Income taxes Net income This Year $ 17,000 202,400 251,800 8,400 $ 35,400 212,600 197,200 17,400 462,600 130,000 752,000 190,600 561,400 $1,228,600 $ 1,154,000 479,600 96,000 864,000 211,000 653,000 $ 176,800 8,200 43,600 3,600 206,000 434,600 Last Year $ 21,000 (6,400) 642,300 610,000 151,700 152,400 794,000 762,400 $ 1,228,600 $ 1,154,000 The following additional information is available for this year. $ 232,200 15,400 40,000 287,600 104,000 391,600 $ 840,000 525,000 315,000 224,700 90,300 14,600 104,900 31,460 $ 73,440 a. The company declared and paid a cash dividend. b. Equipment was sold during the year for $45,600. The equipment originally cost $94,000 and had accumulated depreciation of $42,000. c. Long-term investments that cost $34,000 were sold during this year for $55,000. 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.
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