Question

Plaza Company acquires an 80% interest in Scenic Company for $200,000 cash on January 1, 20X1. On that date, Scenic’s equipment (remaining economic life of 5 years) is undervalued by $25,000; any excess of cost over book value is attributed to goodwill. Scenic’s balance sheet on the date of the purchase is as follows: Assets Liabilities and Equity Cash $ 30,000 Current liabilities $ 30,000 Inventory 30,000 Long-term liabilities 40,000 Property, (net) 210,000 Common Stock (no par) 150,000 Retained Earnings 50,000 Total assets $270,000 Total Liabilities & Equity $270,000 The controlling interest in consolidated net income for 20X1 is $97,900; the noncontrolling interest is $6,000. On December 31, 20X1, Plaza acquired a 15% interest in Adams, Inc. and, in an unrelated transaction, issued additional common stock. Dividends declared and paid during the year by Plaza and Scenic were $30,000 and $15,000, respectively. There are no purchases or sales of property, plant, or equipment during the year. Based on the following information, prepare a statement of cash flows using the indirect method for Plaza Company and its subsidiary for the year ended December 31, 20X1. Plaza 1/1/X1 Consolidated 12/31/X1 Cash 100,000 87,100 Inventory 50,000 84,300 Property (net) 600,000 772,000 Investment in Adams 57,500 Goodwill 25,000 Current Liabilities (80,000) (115,000) Long-term Liabilities (100,000) (130,000) NCI (53,000 Paid-in Capital (C Stk + APIC) (400,000) (490,000) Retained Earnings (170,000) (237,900) --- --- Required: Prepare the consolidated statement of cash flows for the year ended December 31, 20X1, for Plaza and its subsidiary.  

Answer 1

Plaza, Inc. and Subsidiary Scenic Company Consolidated Statement of Cash Flows For the Year Ended December 31, 20X1
Cash flows from operating activities:
Consolidated net income (97900+6000)		103900
Adjustment to reconcile net income to net cash
Depreciation expense (600000+210000+25000-772000)	63000
Inventory increase (84300-(50000+30000)	(4300)
Current liabilities increase (115000-(80000+30000))	5000
Total adjustments		63700
Net cash provided by operating activities		16700
Cash flows from investing activities:
Purchase of interest in Scenic, net of cash acquired (200000-30000)	(170000)
Investment in Adams	(57500)
Net cash used by investing activities		(227500)
Cash flows from financing activities:
Issue common stock (490000-400000)	90000
Payment of long-term debt (130000-(100000+40000))	(10000)
Dividends paid:
By Plaza	(30000)
By Scenic, to noncontrolling interest (15000*20%)	(3000)
Net cash provided by financing activities		47000
Net decrease in cash		(12900)
Cash at beginning of year (Parent only)		100000
Cash at year end (consolidated)		87100
NONCASH TRANSACTION DISCLOSURE:
Plaza acquired 80% of the common stock of Scenic for $200,000 cash. In conjunction with the acquisition, liabilities were assumed and a noncontrolling interest was created as follows:
Adjusted value of assets acquired	270000
Plus excess (goodwill + equipment undervalued)	50000	320000
Cash paid for common stock		200000
Liabilities assumed		70000
Noncontrolling interest		50000