Question

225 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 Allowance for Bad Debts (15) (20) Merchandize Inventories 160 135 Land 200 Plant and Equipment 420 420 Accumulated Depreciation (160) (170) Total Assets 700 Liabilities and Equity Accounts Payable 30 20 Taxes Payable 0 15 Long term Debt 265 255 Contributed Capital Retained Earnings 90 Total Liabilities and Equity 675 700 675 290 330 80 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 $10 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

Amount Amount Cash Flow Statement for the year ending December31st, 2001 Particular Cash flow from Operating Activity Net Income for the Year Add: Non Cash Expense and Non Operating Expense Depreciation Loss on Sale of Equipment Change in Allowance for bad debt =20-15 50 25 10 5 =160-135 25 =45-90 45 Changes in Working Capital Add: Decrease in Current Assets -Decrease in Inventory Less: Increase in Current Assets -Increase in Account Receivable Add: Increase in Current Liabilities -Increase in Taxes Payable Less: Decrease in Current Liabilities -Decrease in Account payable Cash flow from Operating Activity =15-0 15 =20-30 -10 75 Cash flow from Investing Activity Purchase of Equipment Sale of Equipment Purchase of land Note2 Note 1 =200-225 -50 25 -25 -50 Cash flow from Financing Activity Increase in Capital Contribution Repayment of Debts Payment of dividend =330-290 =255-265 =90-80+50 40 -10 -60 Net Cash Flow Opening Cash & Cash Equivalent Closing Cash & Cash Equivalent -30 -5 25 20

Workings Opening Accumuated Depreciation Less Closing Accumuated Depreciation Change in depreciation (a) Depreciation for the year (b) Accumulated Depreciation on Equipment sold (a-b=c) 160 170 10 25 15 Cost of Plant & equipment Sold (d) Less Accumlated dep for the Equipment Sold (C) WDV for the Equipment Sold (d-c=e) Loss for the Equipment Sold (1) Sale Price for the Equipment Sold (e-f) 50 15 35 10 25 Note 1 Opening Plant & Equipment Less: Cost of Plant & equipment Sold Less Closing Plant & Equipment Plant & Equipment Purchased 420 50 420 -50 Note2

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