Question

Comparative balance sheets for 2021 and 2020, a statement of income for 2021, and additional information from the accounting records of Red, Inc., are provided below.

RED, INC. Comparative Balance Sheets December 31, 2021 and 2020 ($ in millions)
	2021				2020
Assets
Cash	$	28			$	114
Accounts receivable		184				136
Prepaid insurance		13				8
Inventory		250				179
Buildings and equipment		451				354
Less: Accumulated depreciation		(123	)			(244	)
	$	803			$	547
Liabilities
Accounts payable	$	93			$	108
Accrued liabilities		12				18
Notes payable		54				0
Bonds payable		172				0
Shareholders’ Equity
Common stock		404				404
Retained earnings		68				17
	$	803			$	547

RED, INC. Statement of Income For Year Ended December 31, 2021
($ in millions)
Revenues
Sales revenue				$	2,020
Expenses
Cost of goods sold	$	1,414
Depreciation expense		41
Operating expenses		460			1,915
Net income				$	105

Additional information from the accounting records:

1. During 2021, $277 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 $54 million, it was necessary for Red to borrow $54 million from its bank.

Required:
Prepare the statement of cash flows of Red, Inc., using the direct method to report operating activities. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Cash Flow Statement
Direct Method
Cash flow from Operating Activities
Cash Collected from customers		$           1,972.00		=2020+136-184
Cash paid to Suppliers		$          -1,500.00		=-(1414+108-93+250-179)
Cash paid for Operating expenses		$             -471.00		=-(460+18-12+13-8)
Cash from operating activities			$                1.00
Cash flow from Investing Activities
Sale of Equipment		$                 18.00		=180*10%
Purchase of Equipment		$             -277.00
Cash used in investing activities			$          -259.00
Cash flow from Financing Activities
Issue of Bonds Payable		$              172.00
Borrowed loan		$                 54.00
Dividend Paid		$               -54.00
Cash from financing activities			$           172.00
Net Increase in cash			$            -86.00
Opening Balance of Cash			$           114.00
Closing Balance of Cash			$              28.00