Mary Walker, president of Rusco Company, considers $45,000 to be the minimum cas
ID: 2454576 • Letter: M
Question
Mary Walker, president of Rusco Company, considers $45,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $40,000 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.
Using the direct method, adjust the company’s income statement for 2015 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 2015. (Cash outflows and amounts to be deducted should be indicated with a minus sign.)
Mary Walker, president of Rusco Company, considers $45,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $40,000 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.
Explanation / Answer
1. Income Statement on Cash Basis
812500-10500+20000
-147500+257500
+24500-45000
+222500-197500
$ Sales 1300000-230000+242500 1312500 Less: Cost of goods sold812500-10500+20000
-147500+257500
+24500-45000
+222500-197500
936500 Gross Margin 376000 Selling and administrative expenses 347750 Net Operating Income 28250 Gain on sale of investments 32500 Loss on sale of equipment (11000) Income before taxes 49750 Less: Income taxes paid 48250+51500-62000 37750 Net Income 12000Related Questions
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