Question - Comparative balance sheets for 2011 and 2010, a statement of income for 2011, and additional information from the accounting records of Red, Inc., are provided below.
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RED, INC. Comparative Balance Sheets
December 31, 2011 and 2010 ($ in millions)
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2011
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2010
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Assets
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Cash
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$24
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$110
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Accounts receivable
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178
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132
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Prepaid insurance
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7
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3
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Inventory
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285
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175
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Buildings and equipment
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400
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350
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Less: Accumulated depreciation
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(119)
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(240)
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$775
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$530
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Liabilities
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Accounts payable
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$87
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$100
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Accrued expenses payable
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6
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11
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Notes payable
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50
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0
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Bonds payable
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160
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0
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Shareholders' Equity
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Common stock
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400
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400
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Retained earnings
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72
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19
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$775
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$530
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RED, INC. Statement of Income For Year Ended December 31, 2011 ($ in millions)
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Revenues
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Sales revenue
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$2,000
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Expenses
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Cost of goods sold
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$1,400
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Depreciation expense
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50
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Operating expenses
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447
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1,897
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Net income
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$103
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Additional information from the accounting records:
a. During 2011, $230 million of equipment was purchased to replace $180 million of equipment (95% depreciated) sold at book value.
b. 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. for the year ended December 31, 2011. Present cash flows from operating activities by the direct method.