Question

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Comparative Balance Sheets and some additional information for Red Company are given below. All figures in the table below are in millions of dollars. Red reports on a fiscal year ending December 31" Green Company Balance 2000 2001 Sheet as of Dec 31 Assets Cash 25 20 Accounts Receivable 45 90 (15) (20) Allowance for Bad Debts Merchandize Inventories 160 135 Land 200 225 Plant and Equipment 420 420 Accumulated Depreciation (160) (170) 675 700 Total Assets Liabilities and Equity Accounts Payable Taxes Payable 30 20 0 15 Long term Debt 265 255 290 330 Contributed Capital Retained Earnings Total Liabilities and Equity 90 80 675 700 Additional Information 1. Red's net income for calendar year 2001 was $50 million. 2. During 2001, Red sold plant and equipment with an original acquisition cost of $50 million at a loss of S10 million. 3. Red's depreciation expense for 2001 was $25 million Prepare in good form Red's Cash Flow Statement for 2001.

Answer 1

Answer:

STATEMENT OF CASH FLOW

FOR THE YEAR ENDED DECEMBER 31, 2001

	Amount Million ($)	Amount Million ($)
Operating activities:
Net income	50
Adjustment:
Depreciation expense	25
Loss on sale of equipment	10
Increase in account receivable	(40)
Decrease in merchandise inventory	25
Decrease in account payable	(10)
Increase in taxes Payable	15
Net cash provided by operating activities		75
Investing activities:
Land purchase	(25)
Sale of equipment*	25
Purchase of equipment*	(50)
Net cash provided by investing activities		(50)
Financing activities:
Payment of long term debt	(10)
Issue common stock	40
Paid dividend*	(60)
Net cash provided by financing activities		(30)
Net increase/(decrease) in cash		(5)
Add: cash balance (beginning)		25
Cash balance (ending)		20

Working note:

* Account receivable

	Year 2000	Year 2001
	Amount Million ($)	Amount Million ($)
Account receivable (beginning)	45	90
Less : allowance for bad debt	(15)	(20)
Net Account receivable	30	70

* Equipment

	Amount Million ($)
Equipment balance (beginning)	420
Less: cost of sale of equipment	(50)
	370
Equipment balance (ending)	(420)
Purchase	50

* Sale value of Equipment= (cost of asset - depreciation - loss on sale of equipment)

= ($50-$15-$10) Millions

Sale value of Equipment = $25 millions

* Accumulated depreciation is reduced by the amount related to sale of equipment

	Amount Million ($)
Accumulated depreciation (beginning)	160
Add: Depreciation expense during the year	25
	185
Accumulated depreciation (ending)	(170)
Depreciation expense related to sale of equipment	15

* Retained earning:

	Amount Million ($)
Retained earning (beginning)	90
Add: net income	50
	140
Retained earning (ending)	(80)
Dividend paid	60