Parento Inc. owns 80% of Santana Corp. The consolidated financial statements of Parento follow:

Parento Inc. purchased its 80% interest in Santana Corp. on January 1, Year 2, for $114,000 when Santana had net assets of $90,000. The acquisition differential was allocated $24,000 to databases (10-year life), with the balance allocated to equipment (20-year life). Parento issued $60,000 in bonds on December 31, Year 4. Santana reported a net income of $26,000 for Year 4 and paid dividends of $10,000. 

Selling and administrative expense includes the following:

Depreciation of buildings and equipment               $37,500

Database amortization                                                 2.400

Loss on land sale                                                           2,500

Parento reported a Year 4 equity method income of $49,480 and paid dividends of $17,000.

Required:

(a) Prepare a consolidated cash flow statement for Year 4.

(b) Why are 100% of the dividends paid by Santana not shown as a cash outflow on the cash flow statement?

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PARENTO INC. CONSOLIDATED BALANCE SHEET At December 31, Year 4 Year 4 Year 3 $ 49,800 136,000 192,000 114,000 500,000 (168,000) 19,200 $843,000 $121,100 115,000 230,000 86,000 598,000 (205,500) 16,800 Cash Accounts receivable Inventory Land Buildings and equipment Accumulated depreciation Databases $961,400 $55,400 27,200 300,000 9,600 180,000 362,480 $31,200 27,000 240,000 10,800 180,000 330,000 24,000 Accounts payable Accrued liabilities Bonds payable Bond premium Common shares Retained earnings Non-controlling interest 26,720 $961,400 $843,000 PARENTO INC. CONSOLIDATED INCOME STATEMENT For the year ended December 31, Year 4 Sales $962,000 Cost of sales $535,000 Selling expense 144,600 Administrative expense 159,800 31,400 Interest expense Income tax Net income Attributable to: Parento's shareholders Non-controlling interest 37,000 907,800 $ 54,200 $ 49,480 4,720