Chapter 10, Problem 10.21P

a

To determine

Consolidated statement of cash flow: consolidated entities, as with individual companies, must present a statement of cash flow when they issue a complete set of financial statements. A consolidated statement of cash flows is similar to a statement of cash flows prepared for an individual corporate entity and is prepared in same manner. Consolidated statement of cash flow is prepared after consolidated financial statement. Consolidated cash flow statement is prepared form the information in the three consolidated statements, when an indirect approach is used consolidated net income must be adjusted for all items that affect consolidated net income and the cash of consolidated entity effectively.

Requirement 1

preparation of worksheet to develop consolidated cash flows for 20X3 using direct method

Answer to Problem 10.21P

Consolidated cash flows working paper shows balance of $1,894,000

Explanation of Solution

T Corporation and A corporation

Consolidated cash flow work paper

Year ended December 31, 20X4

	Balance $ 1/1/X4	Debit	Credit	Balance $ 12/31/X4
Cash	83,000	98,000		181,000
Accounts receivable	210,000		35,000	175,00
Inventory	320,000	(c ) 50,000		370,000
Land	190,000		(d)30,000	160,000
Building and equipment	850,000	(e) 130,000		980,000
Goodwill	40,000		(g) 12,000	28,000
Total Assets	1,693,000			1,894,000
Accumulated Depreciation	280,000		(f) 45,000	325,000
Accounts payable	52,000		(c) 22,000	74,000
Interest payable	45,000	(h)15,000		30,000
Bonds payable	400,000		(i )100,000	500,000
Bond premium	18,000	(h) 2,000		16,000
Common stock	300,000			300,000
Additional paid-in capital	70,000			70,000
Retained earnings	488,000	(j) 25,000	(k) 72,000	535,000
Non-controlling interest	40,000	(l) 3,000	(k) 7,000	44,000
Liability and equity	1,693,000	323,000	323,000	1,894,000

Cash flow from operations:
Cash received from customers	(b)635,000
Cash paid to suppliers		(c )403,000
Cash paid for interest on bonds payable		(h) 86,000
Cash flows from investing activities:
Sale of land	(d ) 10,000
Purchase of buildings and equipment		(e ) 130,000
Cash flows from financing activities:
Sale of bonds	(i)100,000
Dividends paid:
To T’s shareholders		(j)25,000
To Non-controlling shareholders		(l)3,000
Increase in cash		98,000
	745,000	745,000

Explanation of work paper entries

1. Increase in cash
2. Payment received from customers
3. Payments to supplier
4. Sale of land
5. Purchase of building and equipment
6. Depreciation charges
7. Goodwill impairment loss 20X4
8. Payment of interest
9. Sale of bonds
10. T’s dividends $25,000
11. Consolidated net income $79,000
12. A’s dividends $15,000 x .20

b

To determine

Consolidated statement of cash flow: consolidated entities, as with individual companies, must present a statement of cash flow when they issue a complete set of financial statements. A consolidated statement of cash flows is similar to a statement of cash flows prepared for an individual corporate entity and is prepared in same manner. Consolidated statement of cash flow is prepared after consolidated financial statement. Consolidated cash flow statement is prepared form the information in the three consolidated statements, when an indirect approach is used consolidated net income must be adjusted for all items that affect consolidated net income and the cash of consolidated entity effectively.

Requirement 2

preparation of consolidated statement of cash flows for 20X4

Answer to Problem 10.21P

Net increase in cash as per consolidated cash flows statement $98,000

Explanation of Solution

T Corporation and A corporation

Consolidated cash flow statement

Year ended December 31, 20X4

	Amount $	Amount $
Cash flow from operating activities:
Cash received from customers		635,000
Less: Cash payments to suppliers	(403,000)
Cash payments for interest	(86,000)	(489,000)
Net cash from operating activities		146,000
Cash flows from investing activities
Sale of land	10,000
Purchase of buildings and equipment’s	(130,000)
Net cash used in investing activities		(120,000)
Cash flows from financing activities:
Sale of bonds	100,000
Dividends to parent company shareholders	(25,000)
Dividends to non-controlling shareholders	(3,000)
Net cash provided by financing activities		72,000
Net increase in cash		98,000
Cash balance at the beginning of year		83,000
Cash balance at the end of year		181,000