Protecto Corporation purchased 60 percent of Strand Company's outstanding shares on January 1, 20X1, for $27,000 more than book value. At that date, the fair value of the noncontrolling interest was $17,000 more than 40 percent of Strand's book value. The full amount of the differential is considered related to patents and is being amortized over an eight-year period. In 20X1, Strand purchased a piece of land for $70,000 and later in the year sold it to Protecto for $84,000. Protecto is still holding the land as an investment. During 20X3, Protecto bonds with a value of $190,000 were exchanged for equipment valued at $190,000. On January 1, 20x3, Protecto helld inventory purchased previously from Strand for $51,500. During 20x3, Protecto purchased an additional $109,000 of goods from Strand and held $68,500 of this inventory on December 31, 20X3. Strand sells merchandise to the parent at cost plus a 25 percent markup. Strand also purchases inventory items from Protecto. On January 1, 20x3, Strand held inventory it had previously purchased from Protecto for $21,000, and on December 31, 20X3, it held goods it had purchased from Protecto for $8,400 during 20x3. Strand's total purchases from Protecto in 20X3 were $26,000. Protecto sells inventory to Strand at cost plus a 40 percent markup The consolidated balance sheet at December 31, 20X2, contained the following amounts Debit Credit Cash 102,000 200,000 151,500 Accounts Receivable Inventory Land Buildings and Equipment Patents ACcumulated Depreciation Accounts Payable Bonds Payable Noncontrolling 83,000 530,000 33,000 200,000 S 160, 220 88,000 116,280 Interest Common Stock 250,000 285,000 Retained Earnings $1,099,500 $1,099,500 Totals Protecto Corporation purchased 60 percent of Strand Company's outstanding shares on January 1, 20X1, for $27,000 more than book value. At that date, the fair value of the noncontrolling interest was $17,000 more than 40 percent of Strand's book value. The full amount of the differential is considered related to patents and is being amortized over an eight-year period. In 20X1, Strand purchased a piece of land for $70,000 and later in the year sold it to Protecto for $84,000. Protecto is still holding the land as an investment. During 20X3, Protecto bonds with a value of $190,000 were exchanged for equipment valued at $190,000. On January 1, 20x3, Protecto helld inventory purchased previously from Strand for $51,500. During 20x3, Protecto purchased an additional $109,000 of goods from Strand and held $68,500 of this inventory on December 31, 20X3. Strand sells merchandise to the parent at cost plus a 25 percent markup. Strand also purchases inventory items from Protecto. On January 1, 20x3, Strand held inventory it had previously purchased from Protecto for $21,000, and on December 31, 20X3, it held goods it had purchased from Protecto for $8,400 during 20x3. Strand's total purchases from Protecto in 20X3 were $26,000. Protecto sells inventory to Strand at cost plus a 40 percent markup The consolidated balance sheet at December 31, 20X2, contained the following amounts Debit Credit Cash 102,000 200,000 151,500 Accounts Receivable Inventory Land Buildings and Equipment Patents ACcumulated Depreciation Accounts Payable Bonds Payable Noncontrolling 83,000 530,000 33,000 200,000 S 160, 220 88,000 116,280 Interest Common Stock 250,000 285,000 Retained Earnings $1,099,500 $1,099,500 Totals The consolidation worksheet below was prepared on December 31, 20X3. All consolidation entrles and adjustments have been entered properly In the worksheet Protecto accounts for its Investment in Strand using the fully adjusted equity method. PROTECTO CORPORATION AND STRAND COMPANY Consolidation Worksheet December 31, 20x3 Consolidation Entries Protecto Strand Corporation Company DR CR Consolidated Income Statement 520,000 410,000 Sales $109,000 26,000 795, 000 Less: Cost of Goods Sold (390,000) (290,000) 10,300 95,300 6,000 23,600 (544,800) Less Depreciation Expense Less: Amortization Expense Less Other Expense Income from Strand Co (42,000) (32,000) (74,000) (5, 500) (86,700) 5,500 (35,700) 20,460 (51,000) 23,760 3,300 0 84,000 (11,240) $138,500 2,200 Consolidated Net Income 72,760 37,000 $164,260 13,440 NCI in Net Income of Strand Controlling Interest in Net Income Statement of Retained $177,700 72,760 37,000 $140,700 72,760 Earninga Beginning Balance $ 200,000 37,000 (37,000) $200,000 285,000 72,760 (62,000) 295,760 $200,000 285, 000 72,760 (62,000) 295,760 $140,700 37, 00 $177, 00 Net Income 177, 00 Less: Dividends Declared Ending Balance $377,700 Balance Sheet Aaaets 74,800 137,600 210,300 Cash 30,800 94,000 133,000 44,000 43,600 93,400 Accounts Receivable Inventory $13,700 2,400 $ 27,500 Patent 27,500 Investment in Subsidiary 166, 680 8,400 6,180 6,000 170,760 16,500 0 78,000 504,000 14,000 72,000 Land 23,400 290,000 87,400 722, 000 Buildings and Equipment Less: Accumulated (170,000) (104,000) 72,000 (202,000) Depreciation 0 836, 480 90,400 $120,080 $289,360 $1,057,600 Total Assets Liabilities & Equity Accounts Payable Bonds Payable 12,400 96,000 82,000 200,000 108,720 182,000 250,000 295,760 121,120 278,000 250,000 295,760 82,000 377,700 5,600 4,120 Common Stock $177, 00 111,440 11,000 Retained Earnings NCI in NA of Strand 112,720 Total Liabilities & Equity 836, 480 390,400 $469,420 $300,140 $1,057,600 b. Prepare a consolidated statement of cash flows for 20X3. (Amounts to be deducted should be indicated with a minus sign.) PROTECTO CORPORATION AND SUBSIDIARY Consolidated Statement of Cash Flows Year Ended December 31, 20X3 Cash Flows from Operating Activities: Adjustments for noncash items: Changes in operating assets and liabilities: 10 Cash Flows from Investing Activities: Cash Flows from Financing Activities: Dividends Paid: 0 0 Cash balance at beginning of year Cash balance at end of year S 0