Consolidated Statement of Cash Flows Puesto Products purchased 80 percent of the outstanding common shares of Schicken Foods on January 1, 20x1. The balance sheets for both companies as of December 31, 20x0 (i.e., immediately prior to the acquisition) are displayed in Exhibit 1. Details of the acquisition are as follows: Puesto paid $40,000 in cash plus common stock valued at $120,000 to the selling shareholders of Schicken. The fair value of the non-controlling interest is estimated to be $30,000. The fair values of the assets acquired and liabilities assumed of Schicken approximated their book values, except for buildings and equipment, whose fair value is $20,000 higher than book value. The remaining estimated life of the buildings and equipment is 10 years. Financial statements of Puesto and Schicken on December 31, 20x1 are displayed in Exhibit 2. Additional information regarding events taking place during the year are as follows: Puesto sold land it had purchased in 20x0 for $40,000 to a non-affiliate for $70,000. Schicken purchased additional equipment during 20x1 from a non-affiliate for $100,000. Puesto acquired a 25% interest in Inviare Corporation at a cost of 50,000, which equaled 25% of the book value of Inviare's net assets. During the year, Inviare reported net income of $16,000 and paid dividends of $10,000. Required 1. Calculate the amount of goodwill to be recognized on the acquisition date. 2. Calculate the amount of the purchase price that would be considered a control premium. 3. Allocate the goodwill between Puesto and the non-controlling interests 4. Prepare consolidated statements of income, retained earnings and financial position for 20x1. 5. Prepare a consolidated statement of cash flows for 20x1 using the indirect method. Exhibit 1 Balance Sheets December 31, 20x0 Cash Accounts receivable Inventories Land Buildings and equipment, net Total Puesto 270,000 50,000 75,000 125,000 250,000 770,000 Schicken 30,000 25,000 40,000 50,000 75,000 220,000 Accounts payable Long-term debt Common stock Retained earnings Total (100,000) (350,000) (200,000) (120,000) (770,000) (40,000) (80,000) (50,000) (50,000) (220,000) Exhibit 2 Financial Statements December 31, 20x1 Puesto Schicken (550,000) 350,000 Income statement Sales Operating expenses Gain on sale of land Equity income, Schicken Equity income, Inviare Net income (1,000,000) 700,000 (30,000) (158,400) (4,000) (492,400) (200,000) Statement of retained earnings Retained earnings, 12/31/x0 Net income Dividends Retained earnings, 12/31/x1 (120,000) (492,400) 140,000 (472,400) (50,000) (200,000) 100,000 (150,000) 42,000 30,000 Balance sheet Cash Accounts receivable Equity investment, Schicken Equity investment, Inviare Inventories Land Buildings and equipment, net Total 477,500 50,000 238,400 51,500 75,000 125,000 225,000 1,242,400 25,000 90,000 165,000 352,000 Accounts payable Long-term debt Common stock Retained earnings Total (100,000) (350,000) (320,000) (472,400) (1,242,400) (52,000) (100,000) (50,000) (150,000) (352,000)
