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1. Max Leonard, vice president of Marketing for Dysk Computer, Inc must decide whether to introduce a mid-priced version of the firm's DC 6900 personal computer product line - the DC 6900-X. The DC6900-X would sell for $5,000, with unit variable costs of $1,750. Projections made by an independent marketing research firm indicate that the DC6900-X would achieve a sales volume of 50,000 units next year, in its first year of commercialization. One-half of the first year's volume would come from competitors' personal computers and market growth. However, a consumer research study indicates that 30 percent of the DC6900-X sales volume would come from the higher-priced DC6900-0mega personal computer, which sells for $4,000 (with unit variable costs of $2,000). Another 20 percent of the DC6900-X sales volume would come from the economy-priced DC6900-Alpha personal computer, priced at $2,500 (with unit variable costs of$ 1,250). The DC6900-0mega unit volume is expected to be 40,000 units next year, and the DC6900-Alpha is expected to achieve a 60,000-unit sales level. The fixed costs of launching the DC6900-X have been forecast to be $1 million during the first year of commercialization. Should Mr. Leonard add the DC6900-X model to the line of personal computers
Mary Walker, president of Rusco Company, considers $23,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $18,000 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: Cash and cash equivalents $18,000 $36,600 Accounts receivable 203,600 213,900 Inventory 252,700 197,800 Prepaid expenses 9,100 18,600 Total current assets 483,400 466,900 Long-term investments 99,000 135,000 Plant and equipment 866,000 753,000 Less accumulated depreciation 211,500 190,900 Net plant and equipment 654,500 562,100 Total assets $1,236,900 $1,164,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $177,700 $233,300 Accrued liabilities 8,300 15,600 Income taxes payable 44,400 40,500 Total current liabilities 230,400 289,400 Bonds payable 209,000 106,000 Total liabilities 439,400 395,400 Stockholders equity: Common stock 630,400 615,000 Retained earnings 167,100 153,600 Total stockholders' equity 797,500 768,600 Total liabilities and stockholders' equity $1,236,900 $1,164,000 Rusco Company Income Statement For This Year Ended July 31 Sales $860,000 Cost of goods sold 537,500 Gross margin 322,500 Selling and administrative expenses 230,050 Net operating income 92,450 Non-operating items: Gain on sale of investments $21,500 Loss on sale of equipment (6,600 ) 14,900 Income before taxes 107,350 Income taxes 32,190 Net income $75,160 The following additional information is available for this year. The company declared and paid a cash dividend. Equipment was sold during the year for $46,400. The equipment originally cost $96,000 and had accumulated depreciation of $43,000. Long-term investments that cost $36,000 were sold during the year for $57,500. 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 companys executive committee is anxious to see how the income statement would appear on a cash basis. Required: 1. Using the direct method, adjust the companys 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.