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	$	18.0			$	136.0
Accounts receivable		162.0				117.0
Prepaid insurance		12.5				6.5
Inventory		289.0				169.0
Buildings and equipment		420.0				360.0
Less: Accumulated depreciation		(148.0	)			(252.0	)
	$	753.5			$	536.5
Liabilities
Accounts payable	$	92.0			$	111.0
Accrued liabilities		4.5				7.5
Notes payable		50.0				0.0
Bonds payable		100.0				0.0
Shareholders’ Equity
Common stock		400.0				400.0
Retained earnings		107.0				18.0
	$	753.5			$	536.5

RED, INC. Statement of Income For Year Ended December 31, 2021
($ in millions)
Revenues
Sales revenue				$	2,200.0
Expenses
Cost of goods sold	$	1,584.0
Depreciation expense		48.0
Operating expenses		429.0			2,061.0
Net income				$	139.0

Additional information from the accounting records:

1. During 2021, $220.0 million of equipment was purchased to replace $160.0 million of equipment (95.0% depreciated) sold at book value.
2. In order to maintain the usual policy of paying cash dividends of $50.0 million, it was necessary for Red to borrow $50.0 million from its bank.

Required:
Prepare the T-account for Red, Inc.

Answer 1

BUILDING AND EQUIPMENT ACCOUNT
PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance B/d	$                     360	By Asset Disposal A/c	$              160
To Cash Purchase	$                     220	By Balance C/d	$              420
	$                     580		$              580
ASSET DISPOSAL ACCOUNT
PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Building and Equipment	$                     160	By Accumulated Depreciation	$              152
		By Cash Sales	$                   8
	$                     160		$              160
Accumulated Depreciation Account
PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Asset Disposal A/c	$                     152	By Balance B/d	$              252
To Balance C/d	$                     148	By Depreciation for the Year	$                 48
	$                     300		$              300
Inventory A/c
PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Opening Balance	$                     169	By Closing Balance	$              289
To Credit Purchase	$                     120
	$                     289		$              289
Account Payable A/c
PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Cash Paid	$                     139	By Balance B/d	$              111
To Balance C/d	$                       92	By Inventory A/c	$              120
	$                     231		$              231
Account Recievable A/c
PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Opening Balance	$                     117	By Balance C/d	$              162
To Revenue A/c-Sales	$                       45
	$                     162		$              162
Revenue Account
PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Profit & Loss A/c	$                 2,200	By Cash Sales	$           2,155
		By Credit Sales	$                 45
	$                 2,200		$           2,200
Cash Account
PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance B/d	$                     136	By Building Purchase	$              220
To Note Payable(Borrowed)	$                       50	By Payment for:
To Bond Payable	$                     100	Cost of Good Sold	$           1,584
To Asset Disposal	$                          8	Operating Expenses	$              429
To Revenue A/c	$                 2,155	Prepaid Expenses	$                   6
		Accrued Expenses	$                   3
		Divident Paid	$                 50
		Account Payable	$              139
		By Balance C/d	$                 18
	$                 2,449		$           2,449