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 Assets Cash $35 134 Accounts receivable 200 143 Prepaid insurance 5 3 Inventory 307 186 Buildings and equipment 422 361 Less: Accumulated depreciation -130 -251 839 576 Liabilities Accounts payable 98 122 Accrued liabilities 4 9 Notes payable 61 0 Bonds payable 173 0 Shareholders’ Equity Common stock 411 411 Retained earnings 92 34 839 576 RED, INC. Statement of Income For Year Ended December 31, 2021 ($ in millions) Revenues Sales revenue 2,110 Expenses Cost of goods sold $1,424 Depreciation expense 41 Operating expenses 526 1,991 Net income 119 Additional information from the accounting records: During 2021, $241 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 $61 million, it was necessary for Red to borrow $61 million from its bank. Required: Prepare the statement of cash flows of Red, Inc., using the direct method to report operating activities

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter6: Cash And Internal Control

Section: Chapter Questions

Problem 6.2E

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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
Assets
Cash	$35	134
Accounts receivable	200	143
Prepaid insurance	5	3
Inventory	307	186
Buildings and equipment	422	361
Less: Accumulated depreciation	-130	-251
	839	576
Liabilities
Accounts payable	98	122
Accrued liabilities	4	9
Notes payable	61	0
Bonds payable	173	0
Shareholders’ Equity
Common stock	411	411
Retained earnings	92	34
	839	576

RED, INC. Statement of Income For Year Ended December 31, 2021
($ in millions)
Revenues
Sales revenue		2,110
Expenses
Cost of goods sold	$1,424
Depreciation expense	41
Operating expenses	526	1,991
Net income		119

Additional information from the accounting records:

During 2021, $241 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 $61 million, it was necessary for Red to borrow $61 million from its bank.

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

RED, INC.
Statement of Cash Flows
For year ended December 31, 2021 ($ in millions)
Cash flows from operating activities:
Cash inflows:
Cash outflows:
Net cash flows from operating activities
Cash flows from investing activities:
Net cash flows from investing activities
Cash flows from financing activities:
Net cash flows from financing activities
Net increase (decrease) in cash
Cash balance, January 1
Cash balance, December 31
$
$
0
0
0
0

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