Question

Sun Corporation was created on January 1, 20X2, and quickly became successful. On January 1, 20X6, its owner sold 80 percent of the stock to Planet Company at underlying book value. At the date of that sale, the fair value of the remaining shares was equal to 20 percent of the book value of Sun. Planet continued to operate the subsidiary as a separate legal entity and used the equity method in accounting for its investment in Sun. The following consolidated financial statements have been prepared:

PLANET COMPANY AND SUBSIDIARY Consolidated Balance Sheets
	January 1, 20X6					December 31, 20X6
Assets
Cash		$	54,000				$	75,000
Accounts Receivable			121,000					111,000
Inventory			230,000					360,000
Land			95,000					100,000
Buildings and Equipment			800,000					650,000
Less: Accumulated Depreciation			(290,000	)				(230,000	)
Total Assets		$	1,010,000				$	1,066,000
Liabilities and Owners’ Equity
Accounts Payable		$	90,000				$	105,000
Bonds Payable			300,000					250,000
Noncontrolling Interest			30,000					38,000
Common Stock			300,000					300,000
Retained Earnings			290,000					373,000
Total Liabilities and Owners’ Equity		$	1,010,000				$	1,066,000

  

PLANET COMPANY AND SUBSIDIARY Consolidated Income Statement Year Ended December 31, 20X6
Sales	$	1,070,000
Gain on Sale of Equipment		30,000
	$	1,100,000
Cost of Goods Sold	$	750,000
Depreciation Expense		40,000
Other Expenses		150,000
Total Expenses	$	(940,000	)
Consolidated Net Income	$	160,000
Income to Noncontrolling Interest		(12,000	)
Income to Controlling Interest	$	148,000

PLANET COMPANY AND SUBSIDIARY Consolidated Retained Earnings Statement Year Ended December 31, 20X6
Balance, January 1, 20X6	$	290,000
Income to Controlling Interest		148,000
	$	438,000
Dividends Declared, 20X6		(65,000	)
Balance, December 31, 20X6	$	373,000

During 20X6, Sun reported net income of $60,000 and paid dividends of $20,000; Planet reported net income of $148,000 and paid dividends of $65,000. There were no intercompany transfers during the period.

Required:
Prepare a worksheet for a consolidated statement of cash flows for 20X6 using the indirect method of computing cash flows from operations.

Answer 1

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