Question

Bolero Company holds 75 percent of the common stock of Rivera, Inc., and 30 percent of this subsidiary’s convertible bonds. The following consolidated financial statements are for 2017 and 2018:

	2017				2018
Revenues	$	(960,000	)		$	(1,090,000	)
Cost of goods sold		622,000				662,000
Depreciation and amortization		112,000				144,000
Gain on sale of building		0				(42,000	)
Interest expense		52,000				52,000
Consolidated net income		(174,000	)			(274,000	)
to noncontrolling interest		31,000				33,000
to parent company	$	(143,000	)		$	(241,000	)
Retained earnings, 1/1	$	(322,000	)		$	(393,000	)
Net income		(143,000	)			(241,000	)
Dividends declared		72,000				122,000
Retained earnings, 12/31	$	(393,000	)		$	(512,000	)
Cash	$	102,000			$	204,000
Accounts receivable		194,000				162,000
Inventory		222,000				384,000
Buildings and equipment (net)		662,000				746,000
Databases		194,000				167,000
Total assets	$	1,374,000			$	1,663,000
Accounts payable	$	(164,000	)		$	(134,000	)
Bonds payable		(422,000	)			(544,000	)
Noncontrolling interest in Rivera		(54,000	)			(73,000	)
Common stock		(142,000	)			(152,000	)
Additional paid-in capital		(199,000	)			(248,000	)
Retained earnings		(393,000	)			(512,000	)
Total liabilities and equities	$	(1,374,000	)		$	(1,663,000	)

Additional Information for 2018

The parent issued bonds during the year for cash.

Amortization of databases amounts to $27,000 per year.

The parent sold a building with a cost of $104,000 but a $52,000 book value for cash on May 11.

The subsidiary purchased equipment on July 23 for $253,000 in cash.

Late in November, the parent issued stock for cash.

During the year, the subsidiary paid dividends of $56,000. 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, 2018. (Use indirect method) (Negative amounts and amounts to be deducted should be indicated by a minus sign.)

BOLERO COMPANY AND CONSOLIDATED SUBSIDIARY RIVERA Consolidated Statement of Cash Flows Year Ending December 31, 2018 Cash from operating activities: Adjustment from accrual to cash: Net cash flow from operating activities $0 Cash flows from investing activities: Net cash flow from investing activities 0 Cash flows from financing activities: Net cash flow from financing activities 0 0 Cash, January 1, 2018 Cash, December 31, 2018 $0

Answer 1

SOLUTION

BOLERO COMPANY AND CONSOLIDATED SUBSIDIARY RIVERA

Consolidated Statement of Cash Flows

Year Ending December 31, 2018

	Amount ($)	Amount ($)
CASH FROM OPERATING ACTIVTIES
Consolidated net income		274,000
Adjustment from accrual to cash:
Depreciation and amortization		144,000
Gain on sale of building		(42,000)
Decrease in accounts receivable ($194,000 - $162,000)		32,000
Increase in inventory ($384,000 - $222,000)		(162,000)
Decrease in accounts payable ($164,000 - $134,000)		(30,000)
Net cash flow from operating activities (A)		216,000
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of building ($52,000 book value sold at a $42,000 gain)	94,000
Purchase of equipment (given)	(253,000)
Net cash used in investing activities (B)		(159,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid [(56,000*25%) + $122,000]	(136,000)
Issuance of bonds ($544,000 - $422,000)	122,000
Issuance of common stock (increase in common stock and additional paid-in capital) (152,000-142,000)+(248,000-199,000)	59,000
Net cash flow from financing activities (C)		45,000
Net increase in cash during 2018 (A+B+C)		102,000
Cash, January 1, 2018		102,000
Cash, December 31, 2018		204,000