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: Debit Credit Cash $ 99,000 185,000 150,000 Accounts Receivable Inventory Land 80,000 Buildings and Equipment 500,000 Patents 42,000 $ 210,000 Accumulated Depreciation Accounts Payable Bonds Payable Noncontrolling Interest Common Stock 137,200 94,000 112,800 220,000 282,000 $1,056,000 Retained Earnings $1,056,000 Totals 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 Strand Corporation Company DR CR Consolidated Income Statement $ 490,000 $ 380,000 $106,000 23,000 Sales 741,000 Less: Cost of Goods Sold (375,000) (260,000) 10,000 (505,800) 93,200 5,400 20,600 Less: Depreciation Expense Less: Amortization Expense Less: Other Expense (29,000) (39,000) (68,000) (7,000) (84,000) 7,000 (48,000) (36,000) 22,920 27,120 4,200 Income from Strand Co. $ 62,920 $163,120 $133,400 $ 76,200 (13,280) $ Consolidated Net Income 43,000 16,080 2,800 NCI in Net Income of Strand $ 43,000 Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income Less: Dividends Declared 62,920 $179,200 $136,200 62,920 $ 185,000 $ 282,000 $282,000 $185,000 $136,200 62,920 43,000 179,200 62,920 (34,000) $194,000 (59,000) $ 285,920 (59,000) $ 285,920 34,000 $364,200 $170,200 Ending Balance Balance Sheet Assets $ 30,200 91,000 130,000 42,500 $ Cash 72,700 134,000 Accounts Receivable 43,000 $ 12,800 Inventory 92,800 207,600 2,400 35,000 Patent 35,000 Investment in Subsidiary 166,320 6,600 163,320 0 6,000 21,000 5,400 Land 75,000 22,800 11,000 86,800 473,000 Buildings and Equipment Less: Accumulated Depreciation 270,000 69,000 674,000 (209,000) 0 $1,001,100 69,000 (180,000) (98,000) $785,520 $122,000 $279,520 373,100 Total Assets Liabilities & Equity Accounts Payable Bonds Payable Common Stock $ 113,700 269,000 220,000 285,920 $103,600 S10,100 176,000 93,000 $76,000 220,000 76,000 Retained Earnings $170,200 285,920 194,000 364,200 NCI in NA of Strand 4,400 106,880 112,480 4,000 14,000 $1,001,100 785,520 373,100 $448,600 $291,080 Total Liabilities & Equity 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: Cash Flows from Investing Activities: Cash Flows from Financing Activities: Dividends Paid: Cash balance at beginning of year Cash balance at end of year