Protecto Corporation purchased 70 percent of Strand Company's outstanding shares on January 1, 20X1, for $32,500 more than book value. At that date, the fair value of the noncontrolling interest was $15,500 more than 30 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 $56,000 and later in the year sold it to Protecto for $80,000. Protecto is still holding the land as an investment. During 20X3, Protecto bonds with a value of $155,000 were exchanged for equipment valued at $155,000. On January 1, 20x3, Protecto held inventory purchased previously from Strand for $48,000. During 20x3, Protecto purchased an additional $102,000 of goods from Strand and held $58,000 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 $16,100, 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 $34,000. 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 oc Cas nts Receivable 165,000 Inventory 153,500 Land 76,000 460,000 36,000 Buildings and Equipment Patents Accumulated Depreciation Accounts Payable Bonds Payable Noncontrolling Interest $206,000 164,280 92,000 65,220 180,000 278,000 $985,500 Common Stock Retained Earnings $985,500 Totals The consolidation worksheet below was prepared on December 31, 20X3. All consolidation entries and adjustments have been uaa 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 Strand Protecto Consolidated Corporation Company DR CR Income Statement $ 450,000 Sales $340,000 $102,000 34,000 654,000 (355,000) S Less: Cost of Goods Sold (220,000) 9,600 (438,800) 90,400 4,600 31,600 Less: Depreciation Expense Less: Amortization Expense (60,000) (35,000) (25,000) 6,000 (6,000) (80,400) (36,400) 2200 (44,000) ess: Ot Co 36,500 4,200 $ 55,900 $140,400 Consolidated Net Income $178,500 $68,800 51,000 NCI in Net Income of Strand 1,800 14,700 (12 ,900) $ 51,000 $ 55,900 $55,900 $193,200 $142,200 Controlling Interest in Net Income tatement 2hed Earnings alance $278,000 $165,000 $165,000 193,200 $278,000 Net Income 55,900 $142,200 51,000 (30,000) 186,000 55,900 (55,000) Less: Dividends Declared (55,000) 278,900 30,000 $358,200 $172,200 278,900 Ending Balance Balance Sheet Assets $ 29,400 87,000 Cash AcCounts Receivable S 69,900 40,500 42.200 129.200 $ 11,600 2,400 Inventory 126,000 92,000 204,000 $30,000 Patent 30,000 Investment in Subsidiary 158,880 16,800 6,720 166,000 21,000 0 4,600 Land 81,000 440,000 (176,000) 22,000 235,000 (90,000) 24,000 79,000 610,000 (201,000) Buildings and Equipment Less: Accumulated Depreciation 65,000 65,000 $ 746,280 $ 921,100 $341,700 $123,120 $290,000 Total Assets $ 746,280 $341,700 $123,120 $290,000 921,100 Total Assets Liabilities & Equity Accounts Payable Bonds Payable $ 119,380 $ 146,080 26,700 168,000 79,000 247,000 180,000 278,900 69,120 $ 50,000 Common Stock 180,000 50,000 Retained Earnings 278,900 186,000 $172,200 358,200 7,200 NCI in NA of Strand 70,200 2,880 $418,280 9,000 $251,400 Total Liabilities & Equity $ 746,280 921,100 341,700 Required: 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 equired, 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 Works heet Year Ended December 31, 20X3 Consolidation Entries Balance Balance 12/31/X3 Debit Credit Item 1/1/X3 Assets 25,100 $ Cash $ 95,000 69,900 35,800 Accounts receivable 165,000 129,200 Inventory 153,500 50,500 204,000 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: S 0 Cash Flows from Investing Activities: Protecto Corporation purchased 70 percent of Strand Company's outstanding shares on January 1, 20X1, for $32,500 more than book value. At that date, the fair value of the noncontrolling interest was $15,500 more than 30 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 $56,000 and later in the year sold it to Protecto for $80,000. Protecto is still holding the land as an investment. During 20X3, Protecto bonds with a value of $155,000 were exchanged for equipment valued at $155,000. On January 1, 20x3, Protecto held inventory purchased previously from Strand for $48,000. During 20x3, Protecto purchased an additional $102,000 of goods from Strand and held $58,000 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 $16,100, 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 $34,000. 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 oc Cas nts Receivable 165,000 Inventory 153,500 Land 76,000 460,000 36,000 Buildings and Equipment Patents Accumulated Depreciation Accounts Payable Bonds Payable Noncontrolling Interest $206,000 164,280 92,000 65,220 180,000 278,000 $985,500 Common Stock Retained Earnings $985,500 Totals The consolidation worksheet below was prepared on December 31, 20X3. All consolidation entries and adjustments have been uaa 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 Strand Protecto Consolidated Corporation Company DR CR Income Statement $ 450,000 Sales $340,000 $102,000 34,000 654,000 (355,000) S Less: Cost of Goods Sold (220,000) 9,600 (438,800) 90,400 4,600 31,600 Less: Depreciation Expense Less: Amortization Expense (60,000) (35,000) (25,000) 6,000 (6,000) (80,400) (36,400) 2200 (44,000) ess: Ot Co 36,500 4,200 $ 55,900 $140,400 Consolidated Net Income $178,500 $68,800 51,000 NCI in Net Income of Strand 1,800 14,700 (12 ,900) $ 51,000 $ 55,900 $55,900 $193,200 $142,200 Controlling Interest in Net Income tatement 2hed Earnings alance $278,000 $165,000 $165,000 193,200 $278,000 Net Income 55,900 $142,200 51,000 (30,000) 186,000 55,900 (55,000) Less: Dividends Declared (55,000) 278,900 30,000 $358,200 $172,200 278,900 Ending Balance Balance Sheet Assets $ 29,400 87,000 Cash AcCounts Receivable S 69,900 40,500 42.200 129.200 $ 11,600 2,400 Inventory 126,000 92,000 204,000 $30,000 Patent 30,000 Investment in Subsidiary 158,880 16,800 6,720 166,000 21,000 0 4,600 Land 81,000 440,000 (176,000) 22,000 235,000 (90,000) 24,000 79,000 610,000 (201,000) Buildings and Equipment Less: Accumulated Depreciation 65,000 65,000 $ 746,280 $ 921,100 $341,700 $123,120 $290,000 Total Assets $ 746,280 $341,700 $123,120 $290,000 921,100 Total Assets Liabilities & Equity Accounts Payable Bonds Payable $ 119,380 $ 146,080 26,700 168,000 79,000 247,000 180,000 278,900 69,120 $ 50,000 Common Stock 180,000 50,000 Retained Earnings 278,900 186,000 $172,200 358,200 7,200 NCI in NA of Strand 70,200 2,880 $418,280 9,000 $251,400 Total Liabilities & Equity $ 746,280 921,100 341,700 Required: 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 equired, 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 Works heet Year Ended December 31, 20X3 Consolidation Entries Balance Balance 12/31/X3 Debit Credit Item 1/1/X3 Assets 25,100 $ Cash $ 95,000 69,900 35,800 Accounts receivable 165,000 129,200 Inventory 153,500 50,500 204,000 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: S 0 Cash Flows from Investing Activities