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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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