CASH FLOW QUESTIONS

Question 1
Plaza Company acquires an 80% interest in Scenic Company for $200,000 cash on
January 1, 20X1. On that date, Scenic’s equipment (remaining economic life of 5
years) is undervalued by $25,000; any excess of cost over book value is attributed
to goodwill. Scenic’s balance sheet on the date of the purchase is as follows:

Assets Liabilities and Equity

Cash $ Current liabilities $
30,000 30,000
Inventory 30,000 Long-term liabilities 40,000
Property, (net) 210,000 Common Stock (no par) 150,000
Retained Earnings 50,000
Total assets $270,000 Total Liabilities & $270,000
Equity

The controlling interest in consolidated net income for 20X1 is $97,900; the
noncontrolling interest is $6,000. On December 31, 20X1, Plaza acquired a 15%
interest in Adams, Inc. and, in an unrelated transaction, issued additional common
stock. Dividends declared and paid during the year by Plaza and Scenic were
$30,000 and $15,000, respectively. There are no purchases or sales of property,
plant, or equipment during the year. Based on the following information, prepare a
statement of cash flows using the indirect method for Plaza Company and its
subsidiary for the year ended December 31, 20X1.

Plaza Consolidated
1/1/X1 12/31/X1
Cash 100,000 87,100
Inventory 50,000 84,300
Property (net) 600,000 772,000
Investment in Adams 57,500
Goodwill 25,000
Current Liabilities (80,000) (115,000)
Long-term Liabilities (100,000) (130,000)
NCI (53,000
Paid-in Capital (C Stk + (400,000) (490,000)
APIC)
Retained Earnings (170,000) (237,900)
--- ---

Required:

Prepare the consolidated statement of cash flows for the year ended December 31,
20X1, for Plaza and its subsidiary.
Question 2

Company S has been an 80%-owned subsidiary of Company P since January 1, 20X7. The determination
and distribution of excess schedule prepared at the time of purchase was as follows:

Entity 80% Parent 20% NCI

Entity FV $ 712,500 $ 570,000 $ 142,500
Book value:
Pd-In Capt 300,000
RE 1/1/X1 300,000
Book value 600,000 480,000 120,000
Excess $ 112,500 $ 90,000 $ 22,500
Equipment $ 50,000 10 yr 5,000
Goodwill 62,500
Total $ 112,500

On January 2, 20X9, Company P issued $120,000 of 8% bonds at face value to help finance the purchase
of 25% of the outstanding common stock of Alpha Company for $200,000. No excess resulted from this
transaction. Alpha earned $100,000 net income during 20X7 and paid $20,000 in dividends.

The only change in plant assets during 20X9 was that Company S sold a machine for $10,000. The
machine had a cost of $60,000 and accumulated depreciation of $40,000. Depreciation expense recorded
during 20X7 was as follows:

Company P Company S Alpha Company

Buildings $15,000 $ 8,000 $12,000
Machinery 35,000 20,000 4,000

The 20X9 consolidated income was $180,000, of which the NCI was $10,000. Company P paid dividends
of $12,000, and Company S paid dividends of $10,000.

Consolidated inventory was $287,000 in 20X8 and $223,000 in 20X9; consolidated current liabilities
were $246,000 in 20X8 and $216,700 in 20X9. Cash increased by $205,700.

Required:

Using the indirect method and the information provided, prepare the 20X9 consolidated statement of cash
flows for Company P. and its subsidiary, Company S.
Question 3 (Question 2 2018 exam paper)

a) The following comparative consolidated trial balances apply to Clarke’s

Enterprises Inc. and its subsidiary Hugh Anthony Inc. (80% control):

11/30/2017 11/30/2018
Cash $ 275,000 $ 300,800
Trading Securities Portfolio (at market) 160,000 120,000
Accts Rec 350,000 379,600
Inventories 316,000 268,000
Land 95,000 180,000
PPE 500,000 520,000
Accumulated Depreciation (135,000) (152,000)
Goodwill 60,000 60,000
Current Liabilities (190,000) (154,500)
Long-Term Notes Payable (450,000) (390,000)
NCI (161,000) (188,780)
Paid-in Capital (Common Stock + (660,000) (670,000)
APIC)
Retained Earnings (195,000) (288,120)
Treasury Stock 35,000 15,000
$ --- $ ---

The following is additional information for 2018:

a) No trading securities were sold nor were any investments added to the portfolio.
b) Land was acquired by issuing a $40,000 note and giving cash for the balance.
c) Equipment (cost $50,000; accumulated depreciation $40,000) was sold for $3,000
d) Dividends declared and paid: Clarke’s Associates 50,000; Hugh Anthony Inc.
$40,000.
e) Consolidated net income amounted to $178,900.
f) Treasury stock was reissued at premium.

Required:
Prepare the consolidated statement of cash flows for the year ended November 30, 2018, for
Clarke’s Associates and its subsidiary.
Question 4

Bajan Enterprises purchases a 90% interest in the common stock of Trini

Corporation on January 1, 2011, for an agreed priced of $495,000. Bajan issues
$400,000 of bonds to Trini shareholders plus $95,000 cash as a payment. Trini’s
balance sheet on the acquisition date is as follows:

Assets Liabilities and Equity

Cash $ 60,000 Accounts payable $45,000
Accounts receivable 95,000 Long-term liabilities 120,000
Property, plant, and equipment 460,000 Common stock ($10 par) 150,000
Retained earnings 300,000
Total $615,000 Total $615,000

 Trini’s equipment is understated by $20,000 and has a remaining depreciable

life of five years. Any remaining excess is attributable to goodwill.
 In addition to the bonds issued as part of the purchase, Bajan sold additional
bonds in the amount of $100,000.
 Consolidated net income for 2011 is $92,300 of which the non-controlling
interest share is $4,600. Trini pays $10,000 in dividends to all shareholders.
No plant assets are purchased or sold during 2011.

Comparative balance sheet data are as follows:

December 31, December 31,
2010 2011
Parent only Consolidated
Cash $ 82,000 $ 187,700
Accounts receivable 120,000 161,000
Property, plant, and equipment (net) 870,000 1,277,600
Goodwill 80,000
Accounts payable (52,000) (80,000)
Bonds payable (500,000)
Long-term liabilities (80,000) (40,000)
NCI (58,600)
Controlling interest:
Common stock ($10 par) (200,000) (200,000)
Additional paid-in capital (300,000) (300,000)
Retained earnings (440,000) (527,700)
Total 0 0

Required:
Prepare a consolidated statement of cash flows for the year ended December 31, 2007, for Bajan
Enterprises and its subsidiary. Supporting schedules should be in good form.
Question 5

Massy Corporation acquired an 80% interest in Dacosta Inc on January 1, 2011. The
determination and distribution of excess schedule prepared for Dacosta Inc at the time of
purchase was as follows:
Entity 80% 20% NCI
Parent
Entity FV $ 712,500 $ 570,000 $ 142,500
Book value:
Paid-In 300,000
Capital
RE 1/1/2011 300,000
Book value 600,000 480,000 120,000
Excess $ 112,500 $ 90,000 $ 22,500
Equipment $ 50,000 10 5,000
yr
Goodwill 62,500
Total $
112,500

On January 2, 2013, Massy Corporation issued $120,000 of 8% bonds at face

value to help finance the purchase of 25% of the outstanding common stock
of Knights Ltd for $200,000. No excess resulted from this transaction.
Knights Ltd earned $100,000 net income during 2013 and paid $20,000 in
dividends.
The only change in plant assets during 2013 was that Dacosta Inc sold a
machine for $10,000. The machine had a cost of $60,000 and accumulated
depreciation of $40,000. Depreciation expense recorded during 2013 was as
follows:
Massy Dacosta Inc Knights Ltd
Corporation
Buildings $15,000 $ 8,000 $12,000
Machinery 35,000 20,000 4,000

The 2013 consolidated income was $180,000, of which the NCI was $10,000.
Massy Corporation paid dividends of $12,000, and Dacosta Inc paid
dividends of $10,000. Consolidated inventory was $287,000 in 2012 and
$223,000 in 2013; consolidated current liabilities were $246,000 in 2012 and
$216,700 in 2013.
Required:
Prepare the 2013 consolidated statement of cash flows for Massy
Corporation and its subsidiary Dacosta Inc. using the indirect method.
Question 6 – from 2017 exam
Merida Inc. purchases a 90% interest in the common stock of Cosumel Corporation
on January 1, 2016, for an agreed priced of $495,000. Merida Inc. issues $400,000
of bonds to Cosumel shareholders plus $95,000 cash as a payment. Cosumel’s
balance sheet on the acquisition date is as follows:

Assets Liabilities and Equity

Cash $ 60,000 Accounts payable $45,000
Accounts receivable 95,000 Long-term liabilities 120,000
Property, plant, and equipment 460,000 Common stock ($10 par) 150,000
Retained earnings 300,000
Total $615,000 Total $615,000

 Cosumel’s equipment is understated by $20,000 and has a remaining

depreciable life of five years. Any remaining excess is attributable to
goodwill.
 In addition to the bonds issued as part of the purchase, Merida Inc sold
additional bonds in the amount of $100,000.
 Consolidated net income for 2016 is $92,300 of which the non-controlling
interest share is $4,600. Cosumel pays $10,000 in dividends to all
shareholders. No plant assets are purchased or sold during 2016.
Comparative balance sheet data are as follows:
December 31, December 31,
2015 2016
Parent only Consolidated
Cash $ 82,000 $ 187,700
Accounts receivable 120,000 161,000
Property, plant, and equipment (net) 870,000 1,277,600
Goodwill 80,000
Accounts payable (52,000) (80,000)
Bonds payable (500,000)
Long-term liabilities (80,000) (40,000)
NCI (58,600)
Controlling interest:
Common stock ($10 par) (200,000) (200,000)
Additional paid-in capital (300,000) (300,000)
Retained earnings (440,000) (527,700)
Total 0 0
Required:
Prepare a consolidated statement of cash flows for the year ended December 31, 2016, for
Merida Inc. and its subsidiary. Supporting schedules should be in good form.