Chapter 10, Problem 10.25P

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 20X3using direct method

Answer to Problem 10.25P

Consolidated cash flows working paper shows balance of $1,025,000 and decrease in cash is $30,200

Explanation of Solution

D Corporation and SCorporation

Consolidated cash flow work paper

Year ended December 31, 20X3

	Balance $ 1/1/X3	Debit	Credit	Balance $ 12/31/X3
Cash	92,000		(a) 30,200	61,800
Accounts receivable	135,000		(b) 15,000	120,000
Inventory	140,000	(c) 59,000		199,000
Land	75,000	(d) 5,000		80,000
Building and equipment	400,000	(e) 100,000
		(f) 40,000		540,000
Patients	30,000		(g) 5,000	25,000
	872,000			1,025,800
Accumulated Depreciation	210,000		(h) 40,000	250,000
Accounts payable	114,200	(i) 19,200		95,000
Bonds payable	90,000		(j) 100,000	190,000
Common stock	100,000			100,000
Retained earnings	273,000	(k) 50,000	(l) 79,400	302,400
Non-controlling interest	84,800	(m) 8,000	(l) 11,600	88,400
	872,000	281,200	281,200	1,025,800

	Amount $	Amount $
Cash flows from operating activities:
Consolidated net income	(l) 91,000
Amortization expenses	(g) 5,000
Depreciation expenses	(h) 40,000
Decrease in accounts receivable	(b) 15,000
Increase in inventory		(c) 59,000
Decrease in accounts payable		(i) 19,200
Cash flows from investing activities:
Purchase of land		(d) 5,000
Acquisition of buildings and equipment from bond issue		(e) 100,000
Purchase of buildings and equipment’s		(f) 40,000
Cash flows from financing activities:
Dividends paid to D corporation shareholders		(k) 50,000
Dividends paid to non-controlling shareholders		(m) 8,000
Issue of bonds for buildings and equipment’s	(j) 100,000
Decrease in cash	(a) 30,200
	281,200	281,200

Explanation of work paper entries

1. Decrease in cash
2. Payment received from customers
3. Increase in inventory
4. purchase of land
5. purchase of equipment
6. purchase of equipment
7. Impairment of patients
8. Depreciation charges
9. Decrease in accounts payable
10. Issue of bonds
11. Dividends to parent shareholders
12. Controlling interest
13. Dividends to non-controlling shareholders

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 20X3 using direct method

Answer to Problem 10.25P

Decrease in cash for 20X3 as per consolidated statement of cash flows is $30,200

Explanation of Solution

D Corporation and S Corporation

Consolidated cash flow statement

Year ended December 31, 20X3

	Amount $	Amount $
Cash flows from operating activities:
Consolidated net income		91,000
Adjustment of non-cash expenses:
Depreciation expenses	40,000
Amortization expenses	5,000
Total adjustment non-cash expenses		45,000
Adjustment of operating assets and liabilities:
Decrease in accounts receivable	15,000
Increase in inventory	(59,000)
Decrease in accounts payable	(19,200)
Total adjustment		(63,200)
Net cash from operating activities		72,800
Cash flows from investing activities:
Purchase of land	(5,000)
Purchase of buildings and equipment’s	(40,000)
Net cash used in investing activities		(45,000)
Cash flows from financing activities:
Dividends paid to D’s shareholders	(50,000)
Dividends paid to non-controlling shareholders	(8,000)
Net cash from financing activities		(58,000)
Net cash outflow		(30,200)
Cash balance at the beginning of the year		92,000
Cash balance at the end of the year		61,800
Supplemental schedule of non-cash investing and financing activities:
Issuance of bonds to purchase equipment		100,000