Question

Protecto Corporation purchased 60 percent of Strand Company's outstanding shares on January 1, 20X1, for $27,000 more than book value. At that date, the fair value of the noncontrolling interest was $17,000 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 $70,000 and later in the year sold it to Protecto for $84,000. Protecto is still holding the land as an investment. During 20X3, Protecto bonds with a value of $190,000 were exchanged for equipment valued at $190,000. On January 1, 20x3, Protecto helld inventory purchased previously from Strand for $51,500. During 20x3, Protecto purchased an additional $109,000 of goods from Strand and held $68,500 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 $21,000, 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 $26,000. Protecto sells inventory to Strand at cost plus a 40 percent markup The consolidated balance sheet at December 31, 20X2, contained the following amounts Debit Credit Cash 102,000 200,000 151,500 Accounts Receivable Inventory Land Buildings and Equipment Patents ACcumulated Depreciation Accounts Payable Bonds Payable Noncontrolling 83,000 530,000 33,000 200,000 S 160, 220 88,000 116,280 Interest Common Stock 250,000 285,000 Retained Earnings $1,099,500 $1,099,500 Totals

Answer 1

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Part a
	Balance					Balance
Item	1/1/X3	Debit		Credit		12/31/X3
Cash	$       102,000			$         27,200	a	$         74,800
Accounts Receivable	$       200,000			$         62,400	b	$       137,600
Inventory	$       151,500	$         58,800	c			$       210,300
Land	$         83,000	$            4,400	d			$         87,400
Buildings and Equipment	$       530,000	$       190,000	e
		$         74,000	f			$       794,000
Patents	$         33,000			$            5,500	g	$         27,500
	$   1,099,500					$   1,331,600
Accumulated Depreciation	$       200,000			$         74,000	h	$       274,000
Accounts Payable	$       160,220	$         39,100	i			$       121,120
Bonds Payable	$         88,000			$       190,000	j	$       278,000
Common Stock	$       250,000					$       250,000
Retained Earnings	$       285,000	$         62,000	k	$         72,760	l	$       295,760
Noncontrolling Interest	$       116,280	$         14,800	m	$         11,240	m	$       112,720
	$   1,099,500	$       443,100		$       443,100		$   1,331,600
Part b
Cash Flows from Operating Activities:
Consolidated Net Income		$         84,000
Adjustments for noncash items:
Included in Income:
Amortization Expense	g	$            5,500
Depreciation Expense	h	$         74,000
Changes in operating assets and liabilities:
Decrease in Accounts Receivable	b	$         62,400
Increase in Inventory	c	$       (58,800)
Decrease in Accounts Payable	i	$       (39,100)
Net Cash Provided by Operating Activities			$     128,000
Cash Flows from Investing Activities:
Purchase of Land	d	$         (4,400)
Purchase of Buildings and Equipment	f	$       (74,000)
Net Cash Used in Investing Activities			$     (78,400)
Cash Flows from Financing Activities:
Dividends Paid:
To Parent Company Shareholders	k	$       (62,000)
To Noncontrolling Shareholders	m	$       (14,800)
Net Cash Received from financing activities			$     (76,800)
Net Decrease in Cash			$     (27,200)
Cash Balance at Beginning of Year			$     102,000
Cash Balance at End of Year			$       74,800
Supplemental Schedule of Noncash Investing and Financing Activities:
Issuance of Bonds to Purchase Equipment			$     190,000