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	$	43			$	138
Accounts receivable		196				151
Prepaid insurance		9				4
Inventory		302				194
Buildings and equipment		438				369
Less: Accumulated depreciation		(138	)			(259	)
	$	850			$	597
Liabilities
Accounts payable	$	106			$	138
Accrued expenses payable		8				15
Notes payable		69				0
Bonds payable		154				0
Shareholders’ Equity
Common stock		419				419
Retained earnings		94				25
	$	850			$	597

RED, INC. Statement of Income For Year Ended December 31, 2018
($ in millions)
Revenues
Sales revenue				$	2,190
Expenses
Cost of goods sold	$	1,471
Depreciation expense		41
Operating expenses		540			2,052
Net income				$	138

Additional information from the accounting records:

a.During 2018, $249 million of equipment was purchased to replace $180 million of equipment (90% depreciated) sold at book value.

b. In order to maintain the usual policy of paying cash dividends of $69 million, it was necessary for Red to borrow $69 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