Reference no: EM132644110
Problem - 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)
$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
$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:
1. During 2021, $277 million of equipment was purchased to replace $180 million of equipment (90% depreciated) sold at book value.
2. 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.