Protecto Corporation purchased 70 percent of Strand Company's outstanding shares on January 1, 20x1, for $25,300 more than book value. At that date, the fair value of the noncontrolling interest was $14,700 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 $48,000 and later in the year sold it to Protecto for $68,000. Protecto is still holding the land as an investment. During 20x3, Protecto bonds with a value of $135,000 were exchanged for equipment valued at $135,000. On January 1, 20x3, Protecto held inventory purchased previously from Strand for $46,000. During 20x3, Protecto purchased an additional $98,000 of goods from Strand and held $52,000 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 $13,000, and on December 31, 20X3, it held goods it had purchased from Protecto for $6,500 during 20X3. Strand's total purchases from Protecto in 20x3 were $30,000. Protecto sells inventory to Strand at cost plus a 30 percent markup. The consolidated balance sheet at December 31, 20x2, contained the following amounts: Debit Credit Cash $ 91,000 Accounts Receivable 145,000 Inventory 162,500 Land 72,000 Buildings and Equipment 420,000 Patents 30,000 Accumulated Depreciation $202,000 Accounts Payable 148 160 Bonds Payable 100,000 Noncontrolling Interest 56 340 Common Stock 140,000 Retained Earnings 274,000 Totals $920 500 $920 500 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 Protecto Strand Corporation Company Consolidation Entrs DR Income Statement Sales $ 410,000 $ 300,000 $ 98,000 30,000 Less: Cost of Goods Sold (335,000) (180,000) (31,000) (21,000) 5,000 (40,000) (36,800) 38,460 $ 45,660 $ 50,000 $13 Less Depreciation Expense Less Amortization Expense Less Other Expense Income from Strand Co Consolidated Not Income NCI in Net Income of Strand Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income LOSS Dividends Declared Ending Balance 41.960 $174,960 17 340 $ 192,300 $ 45,000 $ 59.000 $13 $ 274,000 45,660 (51 000) $268.000 $ 145,000 59 000 (26 000) $ 178 000 $145,000 192 300 $13 20 5156 $337,300 Balance Sheet Protecto Corporation Strand Company DR CR Consolidated Income Statement Sales $ 410,000 $ 300,000 $ 98,000 30,000 S 582,000 (386,700) Less: Cost of Goods Sold (335,000) (180,000) $ 9,200 87,600 3,000 28,500 (31,000) (21,000) 5,000 (40,000) (36,800) 38,480 $ 45 660 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 $ 59,000 41,960 $174,960 17,340 $192,300 (52,000) (5,000) (76,800) 0 $ 61,500 (15,840) $ 45,660 3,500 $131,800 1,500 $133,300 5 45 660 $ 59.000 S 274,000 45,660 (51 000) S 268,660 $ 145,000 59,000 (26000) $ 178,000 $145,000 192,300 $133,300 26,000 $159 300 $ 274,000 45,660 (51 000) $ 268,660 $337 300 Balance Sheet Assets Cash Accounts Receivable Inventory $ 28 600 83,000 122,000 $ 38 500 41,400 91,200 $ 67,100 124,400 201,300 $ 10,400 1,500 Patent Investment in Subsidiary 148,720 25,000 0 $ 25,000 14,000 6,440 3,000 154,660 17.500 Land Buildings and Equipment Less. Accumulated Depreciation 77,000 407,000 (172,000) 21,200 200,000 (82,000) 20,000 61 000 61,000 78,200 546,000 (193,000) O $ 849,000 Total Assets $ 694,320 $ 310 300 $109.440 $265,060 Liabilities & Equity Accounts Payable Bonds Payable Common Stock Retained Earnings NCI in NA of Strand $ 125,660 160,000 140,000 268,660 $ 15,300 75,000 42.000 178,000 $ 42,000 337 300 6,000 2,700 S388.000 $ 140,000 235,000 140,000 268,660 64,380 $159,300 65 040 7500 $232,440 Total Liabilities & Equity $ 694,320 $ 310,300 $ 849.000 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 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.) Balance 12/31X3 $ 0 0 0 0 0 0 0 5 0 0 0 0 0 PROTECTO CORPORATION AND SUBSIDIARY Consolidated Cash Flow Worksheet Year Ended December 31, 20X3 Consolidation Entries Balance Item Debit Credit 1/1/X3 Assets Cash Accounts receivable Inventory Land Buildings and equipment Less Accumulated depreciation Patents Total Assets $ Liabilities & Equity Accounts payable Bonds payable Common stock Retained earrings Noncontrolling interest Total Liabilities & Equity $ 0 $ 0 $ Cash Flows from Operating Activities Consolidated net income Amortization 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 bond issue Purchase of buildings and equipment Cash Flows from Financing Activities Dividends Paid To Protecto Corp. shareholders To noncontrolling shareholders Issuance of bonds for buildings and equipment Decrease in cash $ 0 $ 0 0 0 $ 0 b. Prepare a consolidated statement of cash flows for 20X3. (Amounts to be deducted should be indicated 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 $ 0 Cash Flows from Investing Activities: 0 Cash Flows from Financing Activities: Dividends Paid 0 $ 0 Cash balance at beginning of year Cash balance at end of year $ 0 Protecto Corporation purchased 70 percent of Strand Company's outstanding shares on January 1, 20x1, for $25,300 more than book value. At that date, the fair value of the noncontrolling interest was $14,700 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 $48,000 and later in the year sold it to Protecto for $68,000. Protecto is still holding the land as an investment. During 20x3, Protecto bonds with a value of $135,000 were exchanged for equipment valued at $135,000. On January 1, 20x3, Protecto held inventory purchased previously from Strand for $46,000. During 20x3, Protecto purchased an additional $98,000 of goods from Strand and held $52,000 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 $13,000, and on December 31, 20X3, it held goods it had purchased from Protecto for $6,500 during 20X3. Strand's total purchases from Protecto in 20x3 were $30,000. Protecto sells inventory to Strand at cost plus a 30 percent markup. The consolidated balance sheet at December 31, 20x2, contained the following amounts: Debit Credit Cash $ 91,000 Accounts Receivable 145,000 Inventory 162,500 Land 72,000 Buildings and Equipment 420,000 Patents 30,000 Accumulated Depreciation $202,000 Accounts Payable 148 160 Bonds Payable 100,000 Noncontrolling Interest 56 340 Common Stock 140,000 Retained Earnings 274,000 Totals $920 500 $920 500 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 Protecto Strand Corporation Company Consolidation Entrs DR Income Statement Sales $ 410,000 $ 300,000 $ 98,000 30,000 Less: Cost of Goods Sold (335,000) (180,000) (31,000) (21,000) 5,000 (40,000) (36,800) 38,460 $ 45,660 $ 50,000 $13 Less Depreciation Expense Less Amortization Expense Less Other Expense Income from Strand Co Consolidated Not Income NCI in Net Income of Strand Controlling Interest in Net Income Statement of Retained Earnings Beginning Balance Net Income LOSS Dividends Declared Ending Balance 41.960 $174,960 17 340 $ 192,300 $ 45,000 $ 59.000 $13 $ 274,000 45,660 (51 000) $268.000 $ 145,000 59 000 (26 000) $ 178 000 $145,000 192 300 $13 20 5156 $337,300 Balance Sheet Protecto Corporation Strand Company DR CR Consolidated Income Statement Sales $ 410,000 $ 300,000 $ 98,000 30,000 S 582,000 (386,700) Less: Cost of Goods Sold (335,000) (180,000) $ 9,200 87,600 3,000 28,500 (31,000) (21,000) 5,000 (40,000) (36,800) 38,480 $ 45 660 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 $ 59,000 41,960 $174,960 17,340 $192,300 (52,000) (5,000) (76,800) 0 $ 61,500 (15,840) $ 45,660 3,500 $131,800 1,500 $133,300 5 45 660 $ 59.000 S 274,000 45,660 (51 000) S 268,660 $ 145,000 59,000 (26000) $ 178,000 $145,000 192,300 $133,300 26,000 $159 300 $ 274,000 45,660 (51 000) $ 268,660 $337 300 Balance Sheet Assets Cash Accounts Receivable Inventory $ 28 600 83,000 122,000 $ 38 500 41,400 91,200 $ 67,100 124,400 201,300 $ 10,400 1,500 Patent Investment in Subsidiary 148,720 25,000 0 $ 25,000 14,000 6,440 3,000 154,660 17.500 Land Buildings and Equipment Less. Accumulated Depreciation 77,000 407,000 (172,000) 21,200 200,000 (82,000) 20,000 61 000 61,000 78,200 546,000 (193,000) O $ 849,000 Total Assets $ 694,320 $ 310 300 $109.440 $265,060 Liabilities & Equity Accounts Payable Bonds Payable Common Stock Retained Earnings NCI in NA of Strand $ 125,660 160,000 140,000 268,660 $ 15,300 75,000 42.000 178,000 $ 42,000 337 300 6,000 2,700 S388.000 $ 140,000 235,000 140,000 268,660 64,380 $159,300 65 040 7500 $232,440 Total Liabilities & Equity $ 694,320 $ 310,300 $ 849.000 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 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.) Balance 12/31X3 $ 0 0 0 0 0 0 0 5 0 0 0 0 0 PROTECTO CORPORATION AND SUBSIDIARY Consolidated Cash Flow Worksheet Year Ended December 31, 20X3 Consolidation Entries Balance Item Debit Credit 1/1/X3 Assets Cash Accounts receivable Inventory Land Buildings and equipment Less Accumulated depreciation Patents Total Assets $ Liabilities & Equity Accounts payable Bonds payable Common stock Retained earrings Noncontrolling interest Total Liabilities & Equity $ 0 $ 0 $ Cash Flows from Operating Activities Consolidated net income Amortization 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 bond issue Purchase of buildings and equipment Cash Flows from Financing Activities Dividends Paid To Protecto Corp. shareholders To noncontrolling shareholders Issuance of bonds for buildings and equipment Decrease in cash $ 0 $ 0 0 0 $ 0 b. Prepare a consolidated statement of cash flows for 20X3. (Amounts to be deducted should be indicated 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 $ 0 Cash Flows from Investing Activities: 0 Cash Flows from Financing Activities: Dividends Paid 0 $ 0 Cash balance at beginning of year Cash balance at end of year $ 0