Reference no: EM131791968

Question - Comparative balance sheets for 2011 and 2010, a statement of income for 2011, and additional information from the accounting records of Red, Inc., are provided below.

RED, INC. Comparative Balance Sheets December 31, 2011 and 2010 ($ in millions)
	2011	2010
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, 2011 ($ 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 2011, $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. for the year ended December 31, 2011. Present cash flows from operating activities by the direct method.