Question

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 2017 Assets Cash $ 24 $ 110 Accounts receivable 178 132 Prepaid insurance 7 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 Bonds payable 160 Shareholders' Equity Common stock 400 400 Retained earnings 72 19 $ 775 $530 RED, INC. Statement of Income For Year Ended December 31, 2018 ($ in millions) Revenues Sales revenue $2,000 Expenses Cost of goods sold $1,400 Depreciation expense Operating expenses 447 1,897 Net income $ 103 50

Additional information from the accounting records:
-During 2018, $230 million of equipment was purchased to replace $180 million of equipment (95% depreciated) sold at book value.

-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 T-account for Red, Inc. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Answer 1

Answer:

$ $ Beg. Bal. Sales Total End. Bal. Beg. Bal. Cash Total End. Bal. 7 Account receivable $ 132 $ 1,954 Cash $ 2,000 $ 2,132 2132 Total 178 Building and equipment $ 350 $ 171 cost of equp sold $ 230 $ 9 Cash $ 580 580 Total 400 Accrued expenses payable $ 5 $ 11 Beg. Bal. Inventory 175 110 285 285 Total 285 Accounts payable 1,860 $ 100 Beg. Bal. $ 1,400 COGS 447 Op exp. 1947 1947 Total 87 End. Bal. Cash $ Prepaid insurance Beg. Bal. $ 3 Cash $ 4. Total 7 Total End. Bal. Accumulated depreciation Dep of equip sold $ 171 $ 240 Beg. Bal. $ 50 depreciation Total 290 290 Total 119 End. Bal. Notes payable - Beg. Bal. $ 50 Cash Total 50 50 Total 50 End. Bal. Cost of goods sold Acc. Payable $ 1,400 $ 1,400 Net income Beg. Bal. Cash Total End. Bal. Total cash Total 11 11 Total 6 End. Bal. Net income $ Sales 2,000 $ 2,000 Acc receivable | Bonds payable - Beg. Bal. $ 160 Cash Total 160 160 Total 160 End. Bal. Operating expenses Acc. Payable $ 447 $ 447 Net income Cash Net income (Income summary) COGS $ 1,400 $ 2,000 Sales Depreciation $ 50 Op exp. $ 447 Retained earnings $ 103 Total 2000 2000 Total Retained earnings $ 50 $ 19 Beg. Bal. $ 103 Net income 122 122 Total 72 End. Bal. Total

$ 110 Cash (Statement of Cash Flows) Beg. Bal. Operating Activities: Cash received from customer Cash paid to supplier Inventory purchased Prepaid insurance paid Accrued expense paid Total cash flow from operating activities 1,954 (1,860) (110) (5) (230) Investing activities: Building and equipment purchased Building and equipment sold Total cash flow from investing activities (221) 160 (50) Financing activities: issuance of Bond payable Cash Dividend paid Issuance of notes payable Total cash flow from financing activities End. Bal. 50 160 24