Mary Walker, president of Rusco Company, considers $49,000 to be the minimum cas
ID: 2720122 • Letter: M
Question
Mary Walker, president of Rusco Company, considers $49,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $44,000 in cash was available at the end of 2015. 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.
The following additional information is available for the year 2015.
Because the Cash account decreased so dramatically during 2015, 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 2015 to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.)
2. Using the data from (1) above and other data from the problem as needed, prepare a statement of cash flows for 2015. (Cash outflows and amounts to be deducted should be indicated with a minus sign.)
Mary Walker, president of Rusco Company, considers $49,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $44,000 in cash was available at the end of 2015. 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.
The following additional information is available for the year 2015.
a. The company declared and paid a cash dividend. b. Equipment was sold during the year for $67,200. The equipment had originally cost $148,000 and had accumulated depreciation of $69,000. c. Long-term investments that had cost $88,000 were sold during the year for $122,500. d. The company did not retire any bonds payable or repurchase any of its common stock.Because the Cash account decreased so dramatically during 2015, 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 2015 to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.)
2. Using the data from (1) above and other data from the problem as needed, prepare a statement of cash flows for 2015. (Cash outflows and amounts to be deducted should be indicated with a minus sign.)
Rusco Company Comparative Balance Sheet July 31, 2015 and 2014 2015 2014 Assets Current assets Cash Accounts receivable Inventory Prepaid expenses $ 44,000 $ 67,800 247,700 213,400 49,800 234,800 276,100 27,300 Total current assets 582,200 578,700 Long-term investments 177,000 265,000 918,000 224,500 779,000 198,700 Plant and equipment Less accumulated depreciation Net plant and equipment 693,500 580,300 Total assets $ 1,452,700 $1,424,000Explanation / Answer
Using the direct method, adjust the company’s income statement for 2015 to a cash basis
Amount
Net profit earned during the year
119880
Add- retained earnings
(226300)
Add- non cash /non operating expenses
Loss on sale of equipment
11800
Depreciation
94800
Add- provision for taxes
39470
Less non operating income
Gain on sale of investment
34500
Add- Increase in Current liability/ decrease in current assets
Decrease in AR
12900
Decrease in prepaid exp
22500
Less- Decrease in Current liability/ Increase in current assets
Increase in inventory
62700
Decrease in AP
60800
Decrease in accrued liability
9900
Less- Income tax paid
51170
Net cash flow from operating activity
(144020)
cash flows for 2015
CASH FLOW STATEMENT
AMOUNT
Cash from operating activity
(144020)
Cash from investing activity
Sale of investment
88000
Sale of equipment
67200
Purchase of equipment
(287000)
Cash flow from investing
(131800)
Cash flow from Financing activity
Issue of bonds
287000
Issue of common stock
27000
Cash flow from financing
314000
Add- Cash and cash equivalent in beginning
67800
Cash and cash equivalent at end
44000
Amount
Net profit earned during the year
119880
Add- retained earnings
(226300)
Add- non cash /non operating expenses
Loss on sale of equipment
11800
Depreciation
94800
Add- provision for taxes
39470
Less non operating income
Gain on sale of investment
34500
Add- Increase in Current liability/ decrease in current assets
Decrease in AR
12900
Decrease in prepaid exp
22500
Less- Decrease in Current liability/ Increase in current assets
Increase in inventory
62700
Decrease in AP
60800
Decrease in accrued liability
9900
Less- Income tax paid
51170
Net cash flow from operating activity
(144020)