Question

LO4 Comparative statements of financial position for 2013 and 2012, the income statement for 2013, and additional information from the accounting records of Red Ltd are provided below. E 21-27 Statement of cash flows; direct method - LO3 LOS LOS LOS RED LTD Comparative Statements of Financial Position December 31, 2013 and 2012 is in millions) 2013 2012 $ 24 178 $110 132 Assets Cash Accounts receivable Prepaid insurance Inventory Buildings and equipment Less: Accumulated depreciation 175 350 285 400 (119) $775 (240) $530 Liabilities Accounts payable Accrued expenses payable Notes payable Bonds payable Shareholders' Equity Ordinary share capital Retained earnings RED LTD Income Statement For Year Ended December 31, 2013 (5 in millions) Revenues Sales revenue Expenses Cost of goods sold $1,400 Depreciation expense Operating expenses 447 Net income $2,000 1,897 $ 103 Additional information from the accounting records: a. During 2013, S230 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 Ltd for the vear ended December 31. 2013. assuming Red classifies dividends paid as a financing activity. Present cash flows from operating activities by the direct method. (You may omit the schedule to reconcile net income to cash flows from operating activities.)

Answer 1

RED LTD Statement of Cash Flows For the year ended December 31, 2013 Direct Method ($ in millions) Cash flows from operating activities Cash collected from customers $1.954 Cash paid for supplies -$1,523 Cash paid for operating expenses -$456 Net cash provided by operating activities Workings: Calculation : Cash collected from customers Beginning AR + Sales - Ending AR $132 $2,000 -S178 $1.954 Purchase from suppliers - Beginning Inventory + cost of goods sold + Ending Inventory -$175 $1,400 $285 $1,510 Cash flows from investing activities Sale of equipment Purchase of equipment Net cash used by investing activities $9 -$230 -$221 Cash flows from financing activities Proceed from borrowing Issued of Bonds payable Payment of dividend Net cash provided by financing activities Cash paid for suppliers Beginning AP + purchase from suppliers - Ending AP $50 160 -$50 $100 $1,510 -$87 $1,523 $160 Net increase in cash Add: beginning cash and cash equivalent Ending cash and cash equivalent -$86 $1101 $11 Cash paid for operating expenses: - Beginning prepaid insurance + Beginning Accrued expenses payable + operating expenses - Ending Accrued expenses payable + Ending prepaid insurance 24 $447 -S6 $456