Shares of Subsidiary outstanding Shares of Subsidiary acquired 80,000 8,000 Cost per share S 4.50 Subsidiary's income in 20X1 25,000 Problem 3. The Statement of Cash Flows (39 points) On January 1, 20X1, Parent purchased shares of Subsidiary. The accountant started the financial statements below, but could not finish them. She also could not produce a statement of cash flows. You have decided to help her out because you are the well- trained Kangaroo and therefore an SCF expert. Note, you are NOT required to produce the direct method of disclosing operating cash flows. The Company uses the EQUITY method of accounting for this investment. 100% of the amortization of excess Subsidiary's dividends in 20X1 Tax rate Estimated tax payment Tax depreciation 9,000 4,000 30.00% 7,000 56,000 Parent Company Sales Income Statement for the year ended December 31, 20X1 S Statement of Retained Eamings 755,000 Income from Subsidiary for the year ended December 31, 20X1 Beginning retained earnings $ 27,200 Cost of goods sold 337,000 Salary expense 291,000 Amortization expense 4,000 Net income Dividends Ending retained earnings (5,600) Depreciation expense 37,000 Interest expense 8,000 Pretax income Tax expense Net income Parent Company Balance Sheet as of December 31 20X0 20X1 Absolute Value of Change Cash $ 49,600 $ 33,200 Accounts receivable 34,300 38,510 4,210 Inventory 19,800 17,190 2,610 Investment in Subsidiary 0 Equipment 338,900 422,600 83,700 Accumulated depreciation (108,400) (145,400) 37,000 Patent 40,000 36,000 4,000 Land 45,500 62,800 17,300 Total $ 419,700 Accounts payable $ 89,600 $ 116,400 26,800 Taxes payable 13,000 Deferred taxes payable - Depreciation 16,900 Dividends payable 1,100 700 400 Notes payable 156,200 144,300 11,900 Common stock ($1 par value) 47,200 52,900 5,700 Additional paid-in capital 68,500 76,700 8,200 Retained earnings 27,200 Total $ 419,700 Page 3