Mary Walker, president of Rusco Company, considers $45,000 to be the minimum cas

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 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 Rusco Company Comparative Balance Sheet at July 31 This Year Last Year Assets Current assets: $ 63,000 242,500 211,000 45,000 561,500 245,000 775,000 222,500197,500 577,500 $1,384,000 Cash $40,000 255,000 272,500 24,500 592,000 165,000 910,000 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: 687,500 $1,444,500 $ 180,000 10,500 62,000 252,500 275,000 527,500 $ 257,500 20,000 51,500 329,000 150,000 479,000 Accounts payable Accrued liabilities Income taxes payable Total current liabilities Bonds Payable Total liabilities Stockholders' equity: 792,500 124,500 917,000 $1,444,500 725,000 180,000 905,000 $1,384,000 Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity

Explanation / Answer

Cash flow indirect method Cash flow from operating activities Net income 113000 Adjustments to reconcile the net income Gain on sale of investment -32500 Depreciation expense 90000 Loss on sale of equipment 11000 Changes in current asset and liabilities decrease in prepaid expense 20500 Increase in accounts receivable -12500 Increase in Inventory -61500 Decrease in accounts payable -77500 decrease in Acrued liabilities -9500 Increase in income tax payable 10500 -61500 Cash flow from operating activities 51500 Cash flow from Investing activities Sales of long term investment 112500 Equipment purchased -275000 Equipment sold 64000 Cash flow from Investing activities -98500 Cash flow from Financing activities Bonds payable 125000 Common stock 67500 Dividend paid -168500 Cash flow from Financing activities 24000 Net Cash and cash equivalent -23000 Add Beginning cash and cash equivalent 63000 Ending cash and cash equivalent 40000

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