Question

Required information

Exercise 21-32 Statement of cash flows;T-account method [LO21-8] Appendix B

[The following information applies to the questions displayed below.]

Comparative balance sheets for 2018 and 2017, a statement of income for 2018, and additional information from the accounting records of Red, Inc., are provided below.

RED, INC. Comparative Balance Sheets December 31, 2018 and 2017 ($ in millions)
	2018
							Assets
							Cash	$	36.0			$	135.0
							Accounts receivable		162.0
							Prepaid insurance		14.0				7.0
							Inventory		272.0				164.0
							Buildings and equipment		368.0				320.0
							Less: Accumulated depreciation		(72.0	)			(224.0	)
								$	780.0			$	524.0
							Liabilities
							Accounts payable	$	82.0			$	96.0
							Accrued expenses payable		8.0				15.0
							Notes payable		50.0				0.0
							Bonds payable		175.0				0.0
							Shareholders’ Equity
							Common stock		400.0				400.0
							Retained earnings		65.0				13.0
								$	780.0			$	524.0

RED, INC. Statement of Income For Year Ended December 31, 2018
($ in millions)
Revenues
Sales revenue				$	1,880.0
Expenses
Cost of goods sold	$	1,316.0
Depreciation expense		38.0
Operating expenses		424.0			1,778.0
Net income				$	102.0

Additional information from the accounting records:

1. During 2018, $248.0 million of equipment was purchased to replace $200.0 million of equipment (95.0% depreciated) sold at book value.
2. In order to maintain the usual policy of paying cash dividends of $50.0 million, it was necessary for Red to borrow $50.0 million from its bank.

Exercise 21-32 Part 1

Required:
Prepare the T-account for Red, Inc

	Cash (Statement of Cash Flows) Beg. Bal.            Operating Activities: Investing Activities: Financing Activities: End. Bal.

	T-Accounts for below-

Retained Earnings/ Net Income(Income summary)/ Prepaid Insurance/ Accounts receivable/ Building and Equipment/ Accounts Payable
Notes Payable/ Sales/ Bonds Payable/ Accumulated Depreciation/ Inventory /Accrued Expenses Payable/ Cost of Goods Sold/Depreciation Expense

Answer 1

Red Inc. Cash flow Statement For the period ending December 31, 2016 (Indirect method) Details $ Amount $ 102 Particulars 50 Cash flows from operating Activities 51 Net Income 52 Add Adjustments to reconcile net income to 53 net cash provided by operating activities: 54 Depreciation 55 Increase in Accounts receivable 56 Increase in Inventory 57 Increase in Prepaid Insurance 58 Decrease in Accounts Payable 59 Decrease in Acrued expenses payable 60 Net Cash used by Operating Activities 61 62 Cash Flows from Investing Activities 63 Sale of equipment 64 Purchase of equipment 65 Net cash flows used in Investing Activities 38 (40) (108) (7) (14) (7) (138) (36) 10 (248) (238) 66

50 175 (50) 67 Cash Flows from Financing Activities 68 Issuance of Notes payable 69 Issuance of bonds payable 70 Payment of cash dividends 71 Net cash Provided by Financing Activities 72 Net Decrease in Cash & its equivalents 73 Add Opening Balance of Cash 74 Closing Balance of Cash 75 175 (99) 135 36 Prepaid Insurance Retained Earnings 50 102 1880 Net Income 1316 38 424 102 Accounts Receivable 122 Accounts Payable 14 96 Building & Equipment 320 200 248 368 162

Notes Payable Bonds Payable Sales 1880 1880 50 175 175 50 Accumulated Dep. 190 224 38 Accrued expenses Payable 7 15 Inventory 164 108 272 72 100 101 Cost of Goods Sold 1316 1316 Depreciation expense 38 Operating expenses 424 424 38 102 103 104