Comparative balance sheets for 2016 and 2015, a statement of income for 2016, an

Question

Comparative balance sheets for 2016 and 2015, a statement of income for 2016, and additional information from the accounting records of Red, Inc., are provided below.

During 2016, $212 million of equipment was purchased to replace $180 million of equipment (90% depreciated) sold at book value.

In order to maintain the usual policy of paying cash dividends of $52 million, it was necessary for Red to borrow $52 million from its bank.

Prepare the statement of cash flows of Red, Inc. using the direct method to report operating activities.

Comparative balance sheets for 2016 and 2015, a statement of income for 2016, and additional information from the accounting records of Red, Inc., are provided below.

Explanation / Answer

Red Inc. All Amounts in $ Cash Flows using Direct Method Cash Flows from Operating Activities Collections from Debtors 1941 Payments for Purchases -1565 Payments for Expenses -431 Cash Inflows from Operating Activities -55 Cash Flows from Investing Activities Sale of Equipment 18 Purchase of Equipment -212 -194 Cash Flows from Financing Activities Notes Payable issued 52 Bonds Payable issued 161 Dividends Paid -52 161 Net Cash Outflows for the year -88 Beginning Cash/Cash Equivalents 114 Closing Cash/Cash Equivalents 26

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