Question

E 21-22 Comparative Statement of Financial Position Accounts receivable Inventory Buildings and equipment Less: Acordated depreciation (119 $100 Accounts payable Accrued expenses payable Notes payable Bonds payable Shareholders' Equity Ordinary share capital Retained earnings 400 5775 RED LTD Income Statement For Year Ended December 31, 2013 is in millions) Revenues Sales revenue $2.000 Expenses Cost of goods sold $1,400 Depreciation expense 50 Operating expenses 1,897 Net Income $ 103 Additional information from the accounting records: a. During 2013, S230 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 S50 million from its bank. Required: Prepare the statement of cash flows of Red Lid for the year ended December 31, 2013, assuming Red classifies dividends paid as a financing activity. Present cash flows from operating activities by the direct method. (You may omit the schedule to reconcile net income to cash flows from operating activities.)

Answer 1

RED LTD Statement of Cash Flows For the year ended December 31, 2013 Direct Method (S in millions) Cash flows from operating activities Cash collected from customers $1.954 Cash paid for supplies -$1.523 Cash paid for operating expenses -$456 Net cash provided by operating activities -$251 Workings: Calculation : Cash collected from customers Beginning AR + Sales - Ending AR $132 $2.000 -$178 $1.954 Purchase from suppliers - Beginning Inventory + cost of goods sold + Ending Inventory Cash flows from investing activities Sale of equipment Purchase of equipment Net cash used by investing activities -$175 $1,400 $285 $1,510 $9 -$230 -$221 Cash paid for suppliers Beginning AP + purchase from suppliers - Ending AP Cash flows from financing activities Proceed from borrowing Issued of Bonds payable Payment of dividend Net cash provided by financing activities $50 $100 $1,510 -587 $1,523 160 -$50 $160 -$861 Net increase in cash Add: beginning cash and cash equivalent Ending cash and cash equivalent $110 Cash paid for operating expenses: - Beginning prepaid insurance + Beginning Accrued expenses payable + operating expenses - Ending Accrued expenses payable + Ending prepaid insurance -3 $11 $447 -S6 $24 $456