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				2017
Assets
Cash	$	36.0			$	135.0
Accounts receivable		162.0				122.0
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 2

Required:
Prepare the statement of cash flows (direct method) for Red, Inc. Use the T-account method to assist in your analysis.

Answer 1

Cash flow statement

Cash flows from operating activities
Cash receipts from customers	1840
Cash paid to supplier	(1438)
Operating expenses paid	(438)
Net cash used in operating activities		(36)
Cash flows from investing activities
Sale of old equipment	10
Purchase of new equipment	(248)
Net cash used in investing activities		(238)
Cash flows from Financing activities
Issue of notes payable	50
Issue of bonds payable	175
Dividends paid	(50)
Cash flows from Financing activities		175
Net cash decrease		(99)
Cash at beginning		135
Cash at ending		36

W/N

Account Recievable

Bal	122	cash received	1840
Sales	1880
		Bal	162

Inventory

Bal	164	COGS	1316
Trade payable	1424
Bal	272

TRADE PAYABLE

Cash paid	1438	96	Bal
		1424	Inventory
		82	Bal

Prepaid insurance

Bal	7
Cash paid	7
Bal	14

Accrued expenses

Cash paid	7	15	Bal
		8	Bal

Operating exepnses paid = 424+ 7+7= 438

Equipment

Bal	320	by cash sale	10
Purchase cash	248	By Accumulated depreciation	190
Bal	368

Notes payable

By cash

50

Bonds payable

By cash

175