In order to maintain the usual policy of paying cash

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Reference no: EM13569523

Comparative balance sheets for 2013 and 2012, a statement of income for 2013, and additional information from the accounting records of Red, Inc., are provided below.

RED, INC. Comparative Balance Sheets December 31, 2013 and 2012 ($ in millions)
	2013			2012
Assets
Cash	$	24		$	110
Accounts receivable		178			132
Prepaid insurance		7			3
Inventory		285			175
Buildings and equipment		400			350
Less: Accumulated depreciation		(119	)		(240	)

	$	775		$	530

Liabilities
Accounts payable	$	87		$	100
Accrued expenses payable		6			11
Notes payable		50			0
Bonds payable		160			0
Shareholders' Equity
Common stock		400			400
Retained earnings		72			19

	$	775		$	530

RED, INC. Statement of Income For Year Ended December 31, 2013 ($ in millions)
Revenues
Sales revenue			$	2,000
Expenses
Cost of goods sold	$	1,400
Depreciation expense		50
Operating expenses		447		1,897

Net income			$	103

Additional information from the accounting records:

a.	During 2013, $230 million of equipment was purchased to replace $180 million of equipment (95% depreciated) sold at book value.

b.	In order to maintain the usual policy of paying cash dividends of $50 million, it was necessary for Red to borrow $50 million from its bank.

Required:

Prepare the statement of cash flows of Red, Inc. using the indirect method to report operating activities.

Reference no: EM13569523

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