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	$	31			$	150
Accounts receivable		255				239
Prepaid insurance		6				2
Inventory		215				100
Buildings and equipment		492				357
Less: Accumulated depreciation		(126	)			(247	)
	$	873			$	601
Liabilities
Accounts payable	$	85			$	114
Accrued liabilities		5				9
Notes payable		57				0
Bonds payable		148				0
Shareholders’ Equity
Common stock		407				407
Retained earnings		171				71
	$	873			$	601

RED, INC. Statement of Income For Year Ended December 31, 2021
($ in millions)
Revenues
Sales revenue				$	2,200
Expenses
Cost of goods sold	$	1,500
Depreciation expense		23
Operating expenses		520			2,043
Net income				$	157

Additional information from the accounting records:

1. During 2021, $315 million of equipment was purchased to replace $180 million of equipment (80% depreciated) sold at book value.
2. In order to maintain the usual policy of paying cash dividends of $57 million, it was necessary for Red to borrow $57 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