Bolero Company holds 75 percent of the common stock of Rivera, Inc., and 30 perc
ID: 2536825 • Letter: B
Question
Bolero Company holds 75 percent of the common stock of Rivera, Inc., and 30 percent of this subsidiary’s convertible bonds. The following consolidated financial statements are for 2017 and 2018:
2017
2018
Revenues
$
(960,000
)
$
(1,090,000
)
Cost of goods sold
622,000
662,000
Depreciation and amortization
112,000
144,000
Gain on sale of building
0
(42,000
)
Interest expense
52,000
52,000
Consolidated net income
(174,000
)
(274,000
)
to noncontrolling interest
31,000
33,000
to parent company
$
(143,000
)
$
(241,000
)
Retained earnings, 1/1
$
(322,000
)
$
(393,000
)
Net income
(143,000
)
(241,000
)
Dividends declared
72,000
122,000
Retained earnings, 12/31
$
(393,000
)
$
(512,000
)
Cash
$
102,000
$
204,000
Accounts receivable
194,000
162,000
Inventory
222,000
384,000
Buildings and equipment (net)
662,000
746,000
Databases
194,000
167,000
Total assets
$
1,374,000
$
1,663,000
Accounts payable
$
(164,000
)
$
(134,000
)
Bonds payable
(422,000
)
(544,000
)
Noncontrolling interest in Rivera
(54,000
)
(73,000
)
Common stock
(142,000
)
(152,000
)
Additional paid-in capital
(199,000
)
(248,000
)
Retained earnings
(393,000
)
(512,000
)
Total liabilities and equities
$
(1,374,000
)
$
(1,663,000
)
Additional Information for 2018
The parent issued bonds during the year for cash.
Amortization of databases amounts to $27,000 per year.
The parent sold a building with a cost of $104,000 but a $52,000 book value for cash on May 11.
The subsidiary purchased equipment on July 23 for $253,000 in cash.
Late in November, the parent issued stock for cash.
During the year, the subsidiary paid dividends of $56,000. Both parent and subsidiary pay dividends in the same year as declared.
Prepare a consolidated statement of cash flows for this business combination for the year ending December 31, 2018. (Use indirect method) (Negative amounts and amounts to be deducted should be indicated by a minus sign.)
BOLERO COMPANY AND CONSOLIDATED SUBSIDIARY RIVERA
Consolidated Statement of Cash Flows
Year Ending December 31, 2018
Cash from operating activities:
Adjustment from accrual to cash:
Net cash flow from operating activities
$0
Cash flows from investing activities:
Net cash flow from investing activities
0
Cash flows from financing activities:
Net cash flow from financing activities
0
0
Cash, January 1, 2018
Cash, December 31, 2018
$0
2017
2018
Revenues
$
(960,000
)
$
(1,090,000
)
Cost of goods sold
622,000
662,000
Depreciation and amortization
112,000
144,000
Gain on sale of building
0
(42,000
)
Interest expense
52,000
52,000
Consolidated net income
(174,000
)
(274,000
)
to noncontrolling interest
31,000
33,000
to parent company
$
(143,000
)
$
(241,000
)
Retained earnings, 1/1
$
(322,000
)
$
(393,000
)
Net income
(143,000
)
(241,000
)
Dividends declared
72,000
122,000
Retained earnings, 12/31
$
(393,000
)
$
(512,000
)
Cash
$
102,000
$
204,000
Accounts receivable
194,000
162,000
Inventory
222,000
384,000
Buildings and equipment (net)
662,000
746,000
Databases
194,000
167,000
Total assets
$
1,374,000
$
1,663,000
Accounts payable
$
(164,000
)
$
(134,000
)
Bonds payable
(422,000
)
(544,000
)
Noncontrolling interest in Rivera
(54,000
)
(73,000
)
Common stock
(142,000
)
(152,000
)
Additional paid-in capital
(199,000
)
(248,000
)
Retained earnings
(393,000
)
(512,000
)
Total liabilities and equities
$
(1,374,000
)
$
(1,663,000
)
Explanation / Answer
SOLUTION
BOLERO COMPANY AND CONSOLIDATED SUBSIDIARY RIVERA
Consolidated Statement of Cash Flows
Year Ending December 31, 2018
Amount ($) Amount ($) CASH FROM OPERATING ACTIVTIES Consolidated net income 274,000 Adjustment from accrual to cash: Depreciation and amortization 144,000 Gain on sale of building (42,000) Decrease in accounts receivable ($194,000 - $162,000) 32,000 Increase in inventory ($384,000 - $222,000) (162,000) Decrease in accounts payable ($164,000 - $134,000) (30,000) Net cash flow from operating activities (A) 216,000 CASH FLOWS FROM INVESTING ACTIVITIES Sale of building ($52,000 book value sold at a $42,000 gain) 94,000 Purchase of equipment (given) (253,000) Net cash used in investing activities (B) (159,000) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid [(56,000*25%) + $122,000] (136,000) Issuance of bonds ($544,000 - $422,000) 122,000 Issuance of common stock (increase in common stock and additional paid-in capital) (152,000-142,000)+(248,000-199,000) 59,000 Net cash flow from financing activities (C) 45,000 Net increase in cash during 2018 (A+B+C) 102,000 Cash, January 1, 2018 102,000 Cash, December 31, 2018 204,000