In the example of the process of preparing a consolidated statement of cash flows where there has been a business combination presented on page 331 of Advanced Accounting, which part did you find the most difficult? The most straight-forward?

Assume you are working for the parent company of a group with five subsidiaries. Of the information presented, which do you think would be the most difficult to obtain? Explain.

page 331 information from textbook

Company P and Subsidiary Company S Consolidated Balance Sheet December 31, 2016 and 2017
Assets	2017	2016
Cash and cash equivalents	$ 179,000	$ 160,000
Inventory	210,000	180,000
Accounts receivable	154,000	120,000
Property, plant, and equipment	1,336,250	1,256,250
Accumulated depreciation	(373,750)	(302,500)
Goodwill	125,000	125,000
Investment in Company E (20%)	333,500	320,000
Total assets	$1,964,000	$1,858,750
Liabilities and Stockholders Equity
Accounts payable	$ 156,500	$ 166,000
Bonds payable	300,000	300,000
Noncontrolling interest	106,700	100,750
Controlling interest:
Common stock (par)	200,000	200,000
Paid-in capital in excess of par	652,000	652,000
Retained earnings	548,800	440,000
Total liabilities and stockholders equity	$1,964,000	$1,858,750

The following additional facts are available to aid in the preparation of a consolidated statement ofcash flows:

1. Company P purchased a new piece of equipment during 2017 for $80,000.

2. In 2017, Company P declared and paid $50,000 in dividends and Company S declared and paid $20,000 in dividends.

Illustration 6-1 is a worksheet approach to calculating a statement of cash flows under the indirect method. Explanations 1 through 6 use changes in balance sheet accounts to analyze cash from operations. This information is taken from the income statement and is implied from changes in current assets and current liabilities. Explanation 7 reflects the only investing activity in this example. Explanations 8 and 9 show the financing activities. The worksheet provides the information needed to develop the statement of cash flows that follows Illustration 6-1.

Illustration 6-1

Company P and Subsidiary Company S Worksheet for Analysis of Cash: Indirect Approach For Year Ended December 31, 2017
	Account Change			Explanations
	Debit	Credit		Debit		Credit	Balance
Inventory	30,000		(4)	30,000			0
Accounts receivable	34,000		(3)	34,000			0
Property, plant, and equipment	80,000		(7)	80,000			0
Accumulated depreciation		71,250			(2)	71,250	0
Goodwill	0						0
Investment in Company E (20%)	13,500		(6)	13,500			0
Accounts payable	9,500		(5)	9,500			0
Bonds payable							0
Noncontrolling interest		5,950	(9)	4,000	(1)	9,950	0
Controlling interest:
Common stock (par)							0
Paid-in capital in excess of par							0
Retained earnings		108,800	(8)	50,000	(1)	158,800	0
	167,000	186,000		221,000		240,000
Net change in cash	19,000	0		19,000		0
Cash from Operations:
Consolidated net income			(1)	168,750
Depreciation expense			(2)	71,250
Increase in accounts receivable					(3)	34,000
Increase in inventory					(4)	30,000
Decrease in accounts payable					(5)	9,500
Equity income in excess of dividends					(6)	13,500
Net cash provided by operating activities.				153,000
Cash from Investing:
Purchase of equipment					(7)	80,000
Net cash used in investing activities						80,000
Cash from Financing:
Dividend payment to controlling interest					(8)	50,000
Dividend payment to noncontrolling interest					(9)	4,000
Net cash used in financing activities						54,000
Net cash provided				19,000

If the direct method of disclosing cash from operating activities is used, the cash flows from the operating activities section of the statement of cash flows would be prepared as follows:

Cash flows from operating activities:
Cash from customers ($900,000 sales $34,000 increase in accounts receivable)	$ 866,000
Cash from investments (dividends received)	2,000
Cash to suppliers ($525,000 cost of goods sold + $30,000 inventory increase + $9,500 decrease in accounts payable)	(564,500)
Cash for general and administrative expenses	(150,500)
Net cash provided by operating activities	$ 153,000

Company P and Subsidiary Company S Consolidated Statement of Cash Flows For Year Ended December 31, 2017
Cash flows from operating activities:
Consolidated net income		$168,750
Adjustments to reconcile net income to net cash:
Depreciation expense	$ 71,250
Increase in accounts receivable	(34,000)
Increase in inventory	(30,000)
Decrease in accounts payable	(9,500)
Equity income from Company E in excess of dividends
Received	(13,500)
Total adjustments		(15,750)
Net cash provided by operating activities		$153,000
Cash flows from investing activities:
Purchase of equipment		(80,000)
Cash flows from financing activities:
Dividend payment to controlling interest	$(50,000)
Dividend payment to noncontrolling interest	(4,000)
Net cash used in financing activities		(54,000)
Net increase in cash and cash equivalents		$ 19,000
Cash and cash equivalents at beginning of year		160,000
Cash and cash equivalents at year-end		$179,000