Chapter 6 Exercise

Solution:

BOLERO COMPANY AND CONSOLIDATED SUBSIDIARY RIVERA

Consolidated Statement of Cash Flows
Year Ending December 31, 2021

CASH FROM OPERATING ACTIVTIES

Consolidated net income............................................... $250,000
Adjustment from accrual to cash:
Depreciation and amortization ................................ 120,000
Gain on sale of building .......................................... (30,000)
Decrease in accounts receivable ............................ 20,000
Increase in inventory ............................................... (150,000)
Decrease in accounts payable ................................ (50,000)
Net cash flow from operating activities ......................... $160,000

CASH FLOWS FROM INVESTING ACTIVITIES

Sale of building ($40000+$30000)................................ $70,000
Purchase of equipment (given)..................................... (205,000)
Net cash flow from investing activities..................... (135,000)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid ($110000+$2000)................................. $(112,000)
Issuance of bonds ........................................................ 110,000
Issuance of common stock ($30000+$37000).............. 67,000
Net cash flow from financing activities .................... 65,000
Net increase in cash during 2021 ...................................... 90,000
Cash, January 1, 2021 ....................................................... 90,000
Cash, December 31, 2021 ................................................. $180,000
Cash Flow statement using Direct method

OPERATING ACTIVITIES
Cash collected from customers (consolidated revenues
plus the decrease in accounts receivable) ......................................... $1,050,000
Cash Purchases (consolidated COGS plus
increase in inventory plus
decrease in accounts payable) .......................................................... (850,000)
Interest expense (the consolidated balance) .......................................... (40,000)
Cash flows from operating activities.................................................... $ 160,000

INVESTING ACTIVITIES
Sale of building ($40,000 book value sold at a $30,000 gain)................. $ 70,000
Purchase of equipment (given in problem)............................................... (205,000)
Cash flows from investing activities.................................................... $(135,000)

FINANCING ACTIVITIES
Dividends paid by parent (the consolidated balance) ............................. $(110,000)
Dividends paid by subsidiary (amount paid to
noncontrolling interest—20%) ............................................................ (2,000)
Issuance of bonds .................................................................................... 110,000
Issuance of common stock by the parent (increase in
common stock and additional paid-in capital) .................................... 67,000
Cash flows from financing activities.................................................... $ 65,000