Comparative balance sheets for 2021 and 2020, a statement of income for 2021, and additional information from the accounting records of Red, Inc., are provided below. RED, INC. Comparative Balance Sheets December 31, 2021 and 2020 ($ in millions) 2021 2020 Assets Cash 28 114 Accounts receivable 184 136 Prepaid insurance 13 8 Inventory 250 179 Buildings and equipment 451 354 Less: Accumulated depreciation (123) (244) Total 803 547 Liabilities Accounts payable 93 108 Accrued liabilities 12 18 Notes payable 54 0 Bonds payable 172 0 Shareholders’ Equity Common stock 404 404 Retained earnings 68 17 Total 803 547 RED, INC. Statement of Income For Year Ended December 31, 2021 ($ in millions) Revenues Sales revenue 2,020 Expenses Cost of goods sold 1,414 Depreciation expense 41 Operating expenses 460 1,915 Net income 105 Additional information from the accounting records: During 2021, $277 million of equipment was purchased to replace $180 million of equipment (90% depreciated) sold at book value. In order to maintain the usual policy of paying cash dividends of $54 million, it was necessary for Red to borrow $54 million from its bank. Required: Prepare the statement of cash flows of Red, Inc., using the direct method to report operating activities. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Comparative balance sheets for 2021 and 2020, a statement of income for 2021, and additional information from the accounting records of Red, Inc., are provided below.

RED, INC. Comparative Balance Sheets December 31, 2021 and 2020 ($ in millions)
	2021	2020
Assets
Cash	28	114
Accounts receivable	184	136
Prepaid insurance	13	8
Inventory	250	179
Buildings and equipment	451	354
Less: Accumulated depreciation	(123)	(244)
Total	803	547
Liabilities
Accounts payable	93	108
Accrued liabilities	12	18
Notes payable	54	0
Bonds payable	172	0
Shareholders’ Equity
Common stock	404	404
Retained earnings	68	17
Total	803	547

RED, INC. Statement of Income For Year Ended December 31, 2021
($ in millions)
Revenues
Sales revenue		2,020
Expenses
Cost of goods sold	1,414
Depreciation expense	41
Operating expenses	460	1,915
Net income		105

Additional information from the accounting records:

During 2021, $277 million of equipment was purchased to replace $180 million of equipment (90% depreciated) sold at book value.
In order to maintain the usual policy of paying cash dividends of $54 million, it was necessary for Red to borrow $54 million from its bank.

Required:
Prepare the statement of cash flows of Red, Inc., using the direct method to report operating activities. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)

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