Question

Protecto Corporation purchased 60 percent of Strand Company's outstanding shares on January 1, 20X1, for $40,500 more than book value. At that date, the fair value of the noncontrolling interest was $15,500 more than 40 percent of Strand's book value. The full amount of the differential is considered related to patents and is being amortized over an eight-year period. In 20X1, Strand purchased a piece of land for $64,000 and later in the year sold it to Protecto for $75,000. Protecto is still holding the land as an investment. During 20X3, Protecto bonds with a value of $175,000 were exchanged for equipment valued at $175,000. On January 1, 20X3, Protecto held inventory purchased previously from Strand for $50,000. During 20X3, Protecto purchased an additional $106,000 of goods from Strand and held $64,000 of this inventory on December 31, 20X3. Strand sells merchandise to the parent at cost plus a 25 percent markup. Strand also purchases inventory items from Protecto. On January 1, 20X3, Strand held inventory it had previously purchased from Protecto for $18,900, and on December 31, 20X3, it held goods it had purchased from Protecto for $8,400 during 20X3. Strand's total purchases from Protecto in 20X3 were $23,000. Protecto sells inventory to Strand at cost plus a 40 percent markup. The consolidated balance sheet at December 31, 20X2, contained the following amounts: Credit $ Debit 99,000 185,000 150,000 80,000 500,000 42,000 Cash Accounts Receivable Inventory Land Buildings and Equipment Patents Accumulated Depreciation Accounts Payable Bonds Payable Noncontrolling Interest Common Stock Retained Earnings Totals $ 210,000 137.200 94,000 112,800 220,000 282,000 $1.056,000 $1.056,000

again

Answer 1

Part a
	Balance					Balance
Item	1/1/X3	Debit		credit
Cash	$99000			-	a	72700
Accounts receivable	$185000			-	b	134000
Inventory	150000	-	c			207600
Land	80000	-	d			86800
Buildings and equipment	500000	175000	e
		-	f
Patents	42000			7000	g	35000
	1056000
Accumulated depreciation	210000			68000	h
Accounts payable	137200	-	i			113700
Bonds payable	94000			175000	j	269000
Common stock	220000					220000
Retained earnings	282000	-	k	62920	l	285920
Non controlling interest	112800	-	m	13280	m	112480
	1056000	-		-		-
Part b
Cash flows from operating activities:
Consolidated net income		75000
Adjustments for non cash items:
Included in income
Amortization expense	g	7000
Depreciation expense	h	-
Changes in operating assets and liabilities:
Decrease in accounts receivable	b	-
Increase in inventory	c	(-)
Decrease in accounts payable	i	(-)
Net cash provided by operating activities				-
Cash flows from investing activities:
Purchase of land	d	(-)
Purchase of buildings and equipment	f	(68000)
Net cash used in investing activities				-
Cash flow from financing activities:
Dividends paid:
To parent company shareholders	k	(59000)
To non controlling shareholders	m	(-)
Net cash received from financing activities				(-)
Net decrease in cash				(-)
Cash balance at beginning of year				-
Cash balance at end of year				-
Supplemental Schedule of non cash investing and financing activities:
Issuance of bonds to purchase equipment				175000