Protecto Corporation purchased 60 percent of Strand Company's outstanding shares on January 1, 20X1, for $40,500 more than book value. At that date, the fair value of the noncontrolling interest was $15,500 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 $64,000 and later in the year sold it to Protecto for $75,000. Protecto is still holding the land as an investment. During 20X3, Protecto bonds with a value of $175,000 were exchanged for equipment valued at $175,000. On January 1, 20X3, Protecto held inventory purchased previously from Strand for $50,000. During 20X3, Protecto purchased an additional $106,000 of goods from Strand and held $64,000 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 $18,900, 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 $23,000. Protecto sells inventory to Strand at cost plus a 40 percent markup. The consolidated balance sheet at December 31, 20X2, contained the following amounts: Credit $ Debit 99,000 185,000 150,000 80.000 500,000 42,000 Cash Accounts Receivable Inventory Land Buildings and Equipment Patents Accumulated Depreciation Accounts Payable Bonds Payable Noncontrolling Interest Common Stock Retained Earnings Totals $ 210.000 137.200 94,000 112,800 220,000 282,000 $1.056,000 $1,056,000 The consolidation worksheet below was prepared on December 31, 20X3. All consolidation entries 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 Corporation Strand Company DR CR Consolidated Income Statement Sales $ 490,000 $ 380,000 (260,000) $106.000 23.000 $ 741,000 (505,800) Less: Cost of Goods Sold (375,000) $ 10,000 93.200 5.400 20,600 (39,000) (29.000) 7.000 (68,000) (7,000) (84,000) (48.000) (36,000) 22.920 $ 62,920 $ 43,000 $ Less: Depreciation Expense Less: Amortization Expense Less Other Expense Income from Strand Co. Consolidated Net Income NCI in Net Income of Strand Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance 27.120 $163.120 16.080 $179.200 4.200 $133,400 2,800 $136.200 76.200 (13,280) 62.920 $ 62.920 $43.000 $ $185.000 179 200 $ 262,000 62,920 159.000) $ 285.920 $ 185,000 43.000 (34000) $ 194000 $136,200 34,000 $170.200 $ 282,000 62,920 (59.000) $ 285,920 $364200 Balance Sheet Assets Cash Accounts Receivable Inventory $ $ 30,200 91.000 130,000 $ 42.500 43 000 92.800 72,700 134.000 207,600 $ 12.800 2,400 Patent Investment in Subsidiary 35,000 166,320 $ 35.000 6.600 6.000 5.400 163,320 21.000 Land Buildings and Equipment Less: Accumulated Depreciation 75.000 473,000 (180,000) 22.800 270.000 (98,000) 11,000 69,000 86,800 674,000 (209,000) 69 000 Total Assets $ 785,520 $ 373.100 $122.000 $279.520 $1,001,100 $ $ Liabilities & Equity Accounts Payable Bonds Payable Common Stock Retained Earnings NCI in NA of Strand $ 103,600 176.000 220,000 285,920 10.100 93.000 76,000 194,000 $ 76.000 364 200 113,700 269,000 220,000 285,920 112,480 4400 $170 200 106.880 14,000 $291,080 4 000 $448.600 Total Liabilities & Equity $ 785,520 S 373.100 $1,001,100 Requireu. a. Prepare a worksheet for a consolidated statement of cash flows for 20X3 using the indirect method. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.) PROTECTO CORPORATION AND SUBSIDIARY Consolidated Cash Flow Worksheet Year Ended December 31, 20X3 Consolidation Entries Balance Debit Credit 11 Balance Accounts receivable Inventory Buildings and equipment Less: Accumulated depreciation Total Assets Liabilities & Equity Accounts payable Bonds payable Common stock Retained earnings Noncontrolling interest Total Liabilities & Equity Cash Flows from Operating Activities Consolidated net income Amortion expense Depreciation expense Decrease in accounts receivable Increase in inventory Decrease in accounts payable Cash Flows from Investing Activities Purchase of land Acquisition of buildings and equipment from bondisse Purchase of buildings and equipment Cash Flows from Financing Acties Odds Pad To Protect Comparis To once wholders Issuance of bonds for buildings and equip Donca Protecto Corporation purchased 60 percent of Strand Company's outstanding shares on January 1, 20X1, for $40,500 more than book value. At that date, the fair value of the noncontrolling interest was $15,500 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 $64,000 and later in the year sold it to Protecto for $75,000. Protecto is still holding the land as an investment. During 20X3, Protecto bonds with a value of $175,000 were exchanged for equipment valued at $175,000. On January 1, 20X3, Protecto held inventory purchased previously from Strand for $50,000. During 20X3, Protecto purchased an additional $106,000 of goods from Strand and held $64,000 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 $18,900, 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 $23,000. Protecto sells inventory to Strand at cost plus a 40 percent markup. The consolidated balance sheet at December 31, 20X2, contained the following amounts: Credit $ Debit 99,000 185,000 150,000 80.000 500,000 42,000 Cash Accounts Receivable Inventory Land Buildings and Equipment Patents Accumulated Depreciation Accounts Payable Bonds Payable Noncontrolling Interest Common Stock Retained Earnings Totals $ 210.000 137.200 94,000 112,800 220,000 282,000 $1.056,000 $1,056,000 The consolidation worksheet below was prepared on December 31, 20X3. All consolidation entries 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 Corporation Strand Company DR CR Consolidated Income Statement Sales $ 490,000 $ 380,000 (260,000) $106.000 23.000 $ 741,000 (505,800) Less: Cost of Goods Sold (375,000) $ 10,000 93.200 5.400 20,600 (39,000) (29.000) 7.000 (68,000) (7,000) (84,000) (48.000) (36,000) 22.920 $ 62,920 $ 43,000 $ Less: Depreciation Expense Less: Amortization Expense Less Other Expense Income from Strand Co. Consolidated Net Income NCI in Net Income of Strand Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared Ending Balance 27.120 $163.120 16.080 $179.200 4.200 $133,400 2,800 $136.200 76.200 (13,280) 62.920 $ 62.920 $43.000 $ $185.000 179 200 $ 262,000 62,920 159.000) $ 285.920 $ 185,000 43.000 (34000) $ 194000 $136,200 34,000 $170.200 $ 282,000 62,920 (59.000) $ 285,920 $364200 Balance Sheet Assets Cash Accounts Receivable Inventory $ $ 30,200 91.000 130,000 $ 42.500 43 000 92.800 72,700 134.000 207,600 $ 12.800 2,400 Patent Investment in Subsidiary 35,000 166,320 $ 35.000 6.600 6.000 5.400 163,320 21.000 Land Buildings and Equipment Less: Accumulated Depreciation 75.000 473,000 (180,000) 22.800 270.000 (98,000) 11,000 69,000 86,800 674,000 (209,000) 69 000 Total Assets $ 785,520 $ 373.100 $122.000 $279.520 $1,001,100 $ $ Liabilities & Equity Accounts Payable Bonds Payable Common Stock Retained Earnings NCI in NA of Strand $ 103,600 176.000 220,000 285,920 10.100 93.000 76,000 194,000 $ 76.000 364 200 113,700 269,000 220,000 285,920 112,480 4400 $170 200 106.880 14,000 $291,080 4 000 $448.600 Total Liabilities & Equity $ 785,520 S 373.100 $1,001,100 Requireu. a. Prepare a worksheet for a consolidated statement of cash flows for 20X3 using the indirect method. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.) PROTECTO CORPORATION AND SUBSIDIARY Consolidated Cash Flow Worksheet Year Ended December 31, 20X3 Consolidation Entries Balance Debit Credit 11 Balance Accounts receivable Inventory Buildings and equipment Less: Accumulated depreciation Total Assets Liabilities & Equity Accounts payable Bonds payable Common stock Retained earnings Noncontrolling interest Total Liabilities & Equity Cash Flows from Operating Activities Consolidated net income Amortion expense Depreciation expense Decrease in accounts receivable Increase in inventory Decrease in accounts payable Cash Flows from Investing Activities Purchase of land Acquisition of buildings and equipment from bondisse Purchase of buildings and equipment Cash Flows from Financing Acties Odds Pad To Protect Comparis To once wholders Issuance of bonds for buildings and equip Donca