en below. All Comparative Balance Sheets and some additional information for Red

Question

en below. All Comparative Balance Sheets and some additional information for Red Company are giv figures in the table below are in millions of dollars. Red reports on a fiscal year ending December 31 25 20 90 (20) 135 225 420 (170) 700 Accounts Receivable (15) 160 200 420 160) 675 Allowance for Bad Debts Plant and Equipment Accumulated Depreciation Total Assets Accounts Payable Taxes Payable Long term Debt Contributed Capital Retained Earnings Total Liabilities and Equity 30 20 255 330 80 700 265 290 675 Additional Information Red's net income for calendar year 2001 was $50 million. During 2001, Red sold plant and equipment with an original acquisition cost of $50 million at a loss of $10 million. Red's depreciation expense for 2001 was S25 million. 1. 2. 3. Prepare in good form Red's Cash Flow Statement for 2001

Explanation / Answer

Cash flow statement for 2001 will be prepared as follows:

Red Company Statement of Cash Flows For the Year Ended 2001 Cash flows from operating activities: Net income 50 Adjustments to reconcile net income with cash flows from operating activities Depreciation expense 25 Loss on sale of plant and equipment 10 Increase in accounts receivable (70 - 30) -40 Decrease in merchandise inventory (160 - 135) 25 Decrease in accounts payable (30 - 20) -10 Increase in taxes payable 15 Net cash provided by operating activities 75 Cash flows from investing activities: Cash received from sale of plant and equipment 25 Cash paid to purchase plant and equipment -50 Cash paid to purchase land -25 Net cash used in investing activities -50 Cash flows from financing activities: Repayment of long-term debt (265-255) -10 Increase in contributed capital (330-290) 40 Dividends paid (90 + 50 - 80) -60 Net cash used in financing activities -30 Net decrease in cash during 2001 -5 Beginning cash balance 25 Ending cash balance 20

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