Comparative balance sheets for 2013 and 2012, a statement of income for 2013, and additional information from the accounting records of Red, Inc., are provided below.
RED, INC.
Comparative Balance Sheets
December 31, 2013 and 2012 ($ in millions) |
|
2013 |
2012 |
| 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, 2013 ($ 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: |
| a. |
During 2013, $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. using the indirect method to report operating activities.
|