Question

Bolero Company holds 75 percent of the common stock of Rivera, Inc., and 40 percent of this subsidiary’s convertible bonds. The following consolidated financial statements are for 2020 and 2021 (credit balances indicated by parentheses):

Bolero Company and Consolidated Subsidiary Rivera
	2020				2021
Revenues	$	(945,000	)		$	(1,075,000	)
Cost of goods sold		619,000				659,000
Depreciation and amortization		109,000				138,000
Gain on sale of building		0				(39,000	)
Interest expense		49,000				49,000
Consolidated net income		(168,000	)			(268,000	)
to noncontrolling interest		28,000				30,000
to parent company	$	(140,000	)		$	(238,000	)
Retained earnings, 1/1	$	(319,000	)		$	(390,000	)
Net income		(140,000	)			(238,000	)
Dividends declared		69,000				119,000
Retained earnings, 12/31	$	(390,000	)		$	(509,000	)
Cash	$	99,000			$	198,000
Accounts receivable		188,000				159,000
Inventory		219,000				378,000
Buildings and equipment (net)		659,000				737,000
Databases		188,000				164,000
Total assets	$	1,353,000			$	1,636,000
Accounts payable	$	(161,000	)		$	(128,000	)
Bonds payable		(419,000	)			(538,000	)
Noncontrolling interest in Rivera		(51,000	)			(70,000	)
Common stock		(136,000	)			(149,000	)
Additional paid-in capital		(196,000	)			(242,000	)
Retained earnings		(390,000	)			(509,000	)
Total liabilities and equities	$	(1,353,000	)		$	(1,636,000	)

Additional Information for 2021

• The parent issued bonds during the year for cash.
• Amortization of databases amounts to $24,000 per year.
• The parent sold a building with a cost of $98,000 but a $49,000 book value for cash on May 11.
• The subsidiary purchased equipment on July 23 for $241,000 in cash.
• Late in November, the parent issued stock for cash.
• During the year, the subsidiary paid dividends of $44,000. Both parent and subsidiary pay dividends in the same year as declared.

Prepare a consolidated statement of cash flows for this business combination for the year ending December 31, 2021. Use the indirect method to compute cash flow from operating activities. (Negative amounts and amounts to be deducted should be indicated by a minus sign.)

Answer 1

Bolero Company and Consolidated Subsidiary Rivera

Consolidated Statement of Cash Flows

Year Ending December 31,2021

Cash From Operating Activities:-
Consolidated Net Income	$268,000
Adjustment from accrual to cash :-
Depreciation & Amortization	138,000
Gain on sale of building	(39,000)
Decrease in accounts receivable	29,000
Increase in inventory	(159,000)
Decrease in accounts payable	(33,000)
Net Cash Flow From Operating Activities	204,000
Cash Flows From Investing Activities:
Sale of Building (49,000+39,000)	88,000
Purchase of equipment (given)	(241,000)
Net Cash Flow From Investing Activities	(153,000)
Cash Flows From Financing Activities:-
Dividends paid (119,000+44,000*.25)	(130,000)
Issuance of Bonds	119,000
Issuance of common stock (13,000+46,000)	59,000
Net Cash Flow From Financing Activities	48,000
Net Increase in Cash During 2021	99,000
Cash January 1, 2021	99,000
Cash December 31,2021	198,000

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