Question

Exercise 21-31 Statement of cash flows;indirect method [LO21-4, 21-5, 21-6, 21-8] Appendix A

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	$	25			$	112
Accounts receivable		180				133
Prepaid insurance		8				4
Inventory		287				176
Buildings and equipment		402				351
Less: Accumulated depreciation		(120	)			(241	)
	$	782			$	535
Liabilities
Accounts payable	$	88			$	102
Accrued expenses payable		7				13
Notes payable		51				0
Bonds payable		161				0
Shareholders’ Equity
Common stock		401				401
Retained earnings		74				19
	$	782			$	535

RED, INC. Statement of Income For Year Ended December 31, 2018
($ in millions)
Revenues
Sales revenue				$	2,010
Expenses
Cost of goods sold	$	1,414
Depreciation expense		41
Operating expenses		449			1,904
Net income				$	106

Additional information from the accounting records:

1. During 2018, $231 million of equipment was purchased to replace $180 million of equipment (90% depreciated) sold at book value.
2. In order to maintain the usual policy of paying cash dividends of $51 million, it was necessary for Red to borrow $51 million from its bank.

Required:
Prepare the statement of cash flows of Red, Inc. using the indirect method to report operating activities.

RED, INC. Statement of Cash Flows For year ended December 31, 2018 ($ in millions) Cash flows from operating activities:    Adjustments for noncash effects: Changes in operating assets and liabilities: Net cash flows from operating activities $0 Cash flows from investing activities: Net cash flows from investing activities 0 Cash flows from financing activities: Net cash flows from financing activities 0 Net increase (decrease) in cash 0 Cash balance, January 1 Cash balance, December 31 $0

Answer 1

Answer-

RED INC.
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED 30 JUNE,2018
Particulars		Amount
		$ in millions
Cash flow from operating activities
Net Income		106
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation		41
Change in operating assets & liabilities
Increase in accounts receivable		-47
Increase in inventory		-111
Increase in prepaid expenses		-4
Decrease in accounts payable		-14
Decrease in accrued expenses payable		-6
Net cash flow from operating activities (a)		-35
Cash Flow from Investing activities
New equipment purchased		-231
Old Equipment sold		18
Net cash Flow from Investing activities (b)		-213
Cash Flow from Financing activities
Cash dividends paid		-51
Bonds issued		161
Notes payable issued		51
Net cash Flow from Financing activities (c)		161
Net Change in cash c=a+b+c		-87
Beginning cash balance		112
Closing cash balance		25