CHAPTER 21 (9.)

Comparative balance sheets for 2018 and 2017, a statement of income for 2018, and additional information from the accounting records of Red, Inc., are provided below.

RED, INC. Comparative Balance Sheets December 31, 2018 and 2017 ($ in millions)
	2018				2017
Assets
Cash	$	43			$	138
Accounts receivable		196				151
Prepaid insurance		9				4
Inventory		302				194
Buildings and equipment		438				369
Less: Accumulated depreciation		(138	)			(259	)
	$	850			$	597
Liabilities
Accounts payable	$	106			$	138
Accrued expenses payable		8				15
Notes payable		69				0
Bonds payable		154				0
Shareholders Equity
Common stock		419				419
Retained earnings		94				25
	$	850			$	597

RED, INC. Statement of Income For Year Ended December 31, 2018
($ in millions)
Revenues
Sales revenue				$	2,190
Expenses
Cost of goods sold	$	1,471
Depreciation expense		41
Operating expenses		540			2,052
Net income				$	138

Additional information from the accounting records:

1. During 2018, $249 million of equipment was purchased to replace $180 million of equipment (90% depreciated) sold at book value.
2. In order to maintain the usual policy of paying cash dividends of $69 million, it was necessary for Red to borrow $69 million from its bank.

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