Question

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	$	24			$	110
Accounts receivable		178				132
Prepaid insurance		7				3
Inventory		285				175
Buildings and equipment		400				350
Less: Accumulated depreciation		(119	)			(240	)
	$	775			$	530
Liabilities
Accounts payable	$	87			$	100
Accrued expenses payable		6				11
Notes payable		50				0
Bonds payable		160				0
Shareholders’ Equity
Common stock		400				400
Retained earnings		72				19
	$	775			$	530

RED, INC. Statement of Income For Year Ended December 31, 2018
($ in millions)
Revenues
Sales revenue				$	2,000
Expenses
Cost of goods sold	$	1,400
Depreciation expense		50
Operating expenses		447			1,897
Net income				$	103

Additional information from the accounting records:

1. During 2018, $230 million of equipment was purchased to replace $180 million of equipment (95% depreciated) sold at book value.
2. In order to maintain the usual policy of paying cash dividends of $50 million, it was necessary for Red to borrow $50 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