On January 1, 2018, Beilich Enterprises bought 20% of the outstanding common sto
ID: 2538029 • Letter: O
Question
On January 1, 2018, Beilich Enterprises bought 20% of the outstanding common stock of Wolfe Construction Company for $450.0 million cash. Wolfe’s net income for the year ended December 31, 2018, was $225.0 million. During 2018, Wolfe declared and paid cash dividends of $45.0 million. Beilich recorded the investment as follows:
($ in millions)
Purchase
Investment in Wolfe Construction shares 450.0
Cash 450.0
Net income
Investment in Wolfe Construction shares (20% × $225.0 million) 45.0
Investment revenue 45.0
Dividends
Cash (20% × $45.0 million) 9.0
Investment in Wolfe Construction shares. 9.0
Required: What would be the pretax amounts related to the investment that Beilich would report in its statement of cash flows for the year ended December 31, 2018? (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). Cash outflows should be indicated by a minus sign.)
Explanation / Answer
Beilich would report in its statement of cash flows for the year ended December 31, 2018 as follows:-
Operating activities - Dividend received for $9 million will increase cash flow from operating activities.
Investing activities - Cash paid for the Investment in Wolfe Construction shares for $(450) million will reduce the cash flow from investing activities