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Elanso [62]
3 years ago
15

Condensed financial data of Windsor, Inc. follow. Windsor, Inc. Comparative Balance Sheets December 31 Assets 2022 2021 Cash $56

,560 $33,880 Accounts receivable 61,460 26,600 Inventory 78,750 71,995 Prepaid expenses 19,880 18,200 Long-term investments 96,600 76,300 Plant assets 199,500 169,750 Accumulated depreciation (35,000) (36,400) Total $477,750 $360,325Liabilities and Stockholders' Equity Accounts payable $71,400 47,110 Accrued expenses payable 11,550 14,700 Bonds payable 77,000 102,200Common stock 54,000 122,500Retained earnings 1,163,800 73,815Total $477,75 $360,325 Windsor, Inc. Income Statement Data For the Year Ended December 31, 2022 Sales revenue Less: Cost of goods sold $94,822 Operating expenses, excluding depreciation 8,687 Depreciation expense 32,550 Income tax expense 19,096 Interest expense 3,311Loss on disposal of plant assets 5,250 163,716Net income $108,206 Additional information: 1. New plant assets costing $70,000 were purchased for cash during the year. 2. Old plant assets having an original cost of $40,250 and accumulated depreciation of $33,950 were sold for $1,050 cash. 3. Bonds payable matured and were paid off at face value for cash. 4. A cash dividend of $18,221 was declared and paid during the year. Prepare a statement of cash flows using the indirect method.
Business
1 answer:
Solnce55 [7]3 years ago
4 0

Answer:

                                      Windsor, Inc.

                             Statement of Cash Flows

                                  December 31, 2022

Cash flow from operating activities

Net income                                                                           $108,206

Adjustments to net income                                                   $19,005

  • Depreciation expense $32,550
  • Loss on disposal of assets $5,250
  • Increase in prepaid expenses ($1,680)
  • Increase in accounts payable $24,290
  • Increase in accounts receivable ($34,860)
  • Increase in inventory ($6,755)
  • Decrease in accrued expenses payable ($3,150)

<u>                                                                                                               </u>

Total cash flow from operating activities                           $123,851

Cash flow from investing activities

Increase in long term investments                                    ($20,300)

Purchase in new plant assets                                            ($70,000)

Proceeds from disposal of assets                                         $1,050

<u>                                                                                                               </u>

Total cash flow from investing activities                          ($89,250)

Cash flow from financing activities

Issuance of common stocks                                                $31,500

Payment of bonds payable                                               ($25,200)

Dividends paid                                                                     ($18,221)

<u>                                                                                                              </u>

Total cash flow from financing activities                            ($11,921)

Total increase in cash                                                        $22,680

Cash balance December 31, 2021                                     $33,880

<u>                                                                                                              </u>

Cash balance December 31, 2022                                    $56,560

Explanation:

2022 2021

Cash $56,560 $33,880 +22,680

Accounts receivable 61,460 26,600 +34,860

Inventory 78,750 71,995 +6,755

Prepaid expenses 19,880 18,200 +1,680

Long-term investments 96,600 76,300 +20,300

Plant assets 199,500 169,750 +29,750

Accumulated depreciation (35,000) (36,400) -1,400

Total $477,750 $360,325

Liabilities and Stockholders' Equity

Accounts payable $71,400 47,110 +24,290

Accrued expenses payable 11,550 14,700 -3,150

Bonds payable 77,000 102,200 -25,200

Common stock 154,000 122,500 +31,500

Retained earnings 163,800 73,815 +89,985

Total $477,750 $360,325

Depreciation expense 32,550

Interest expense 3,311

Loss on disposal of plant assets 5,250

Net income $108,206

cash dividend of $18,221

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Power Corporation acquired 100 percent ownership of Scrub Company on February 12, 20X9. At the date of acquisition, Scrub Compan
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Answer:

a. See the journal entries in the explanation below.

Retained Earnings is $175,000

Goodwill is $25,000

b. See the journal entries in the explanation below.

Retained Earnings is $175,000

Capital Reserve is $4,000

Explanation:

Note: There are mistakes the names of the companies in the requirements a anb b. These correctly restated before answering the question by as follows:

a. Prepare the following consolidation entries required to prepare a consolidated balance sheet immediately after the business combination assuming Power acquired its ownership of Scrub for $291,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the basic consolidation entry

2. Record the excess value (differential reclassification entry)

b. Prepare the following consolidation entries required to prepare a consolidated balance sheet immediately after the business combination assuming Power acquired its ownership of Scrub for $262,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the basic consolidation entry.

2. Record the excess value (differential) reclassification entry.

<u>The answers and explanation are therefore given as follows:</u>

a. Prepare the following consolidation entries required when Consideration is $291,000

1. Record the basic consolidation entry

<u>Accounts                                              Dr ($)              Cr ($)              </u>

Common Stock                                   91,000

Retained Earnings (w.1)                    175,000

Goodwill (w.2)                                    25,000  

     Investment in Scrub Company                           291,000

<u><em>(To record the elimination of investment and stockholder equity.)   </em></u>

2. Record the excess value (differential reclassification entry)

Note that $25,000 is transferred to Goodwill account in part 1 above.

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When Net Consideration is more than the net asset value (Stockholder Equity), then the difference is to be transferred to Goodwill.

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w.1: Calculation of retained earning to be eliminated

Particulars                                                                        $

Retained Earnings Balance                                        160,000

Increase in land value                                                  21,000

Decrease in inventories values                              <u>     (6,000)  </u>

Fair Value retained earnings to be eliminated      <u>    175,000  </u>

w.2: Calculation of Goodwill to be recognized

Particulars                                                      $                         $

Consideration paid for acquisition                                     291,000

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Increase in land value                                21,000

Decrease in inventories values         <u>       (6,000)  </u>

Assets                                                       435,000

Liabilities                                                <u>  (169,000)  </u>

Net asset value of Scrub                                                 <u> (266,000) </u>

Goodwill to be recognized                                            <u>      25,000  </u>

b. Prepare the following consolidation entries required when Consideration is $262,000

1. Record the basic consolidation entry

<u>Accounts                                              Dr ($)              Cr ($)              </u>

Common Stock                                   91,000

Retained Earnings (w.3)                    175,000

     Investment in Scrub Company                           262,000

     Capital reserve (w.4)                                                4,000

<u><em>(To record the elimination of investment and stockholder equity.)   </em></u>

2. Record the excess value (differential reclassification entry)

Note that $4,000 is transferred to Capital Reserve in part 1 above.

The $4,000 is transferred to Capital Rserve because when the consideration is less than the net asset value which is calculated as the of Common Stock and Retained Earnings, the difference is Capital Reserve.

When Net Consideration is less than the net asset value (Stockholder Equity), then the difference is to be transferred to Capital reserve.

Workings:

w.3: Calculation of retained earning to be eliminated

Particulars                                                                         $

Retained Earnings Balance                                        160,000

Increase in land value                                                  21,000

Decrease in inventories values                            <u>      (6,000)  </u>

Fair Value retained earnings to be eliminated     <u>    175,000  </u>

w.4: Calculation of Goodwill to be recognized

Particulars                                                      $                         $

Consideration paid for acquisition                                     262,000

Assets of Scrub:

Asset book value                                     420,000

Increase in land value                                21,000

Decrease in inventories values          <u>       (6,000)  </u>

Assets                                                       435,000

Liabilities                                                <u>  (169,000)  </u>

Net asset value of Scrub                                                  <u>  (266,000) </u>

Capital reserve to be recognized                                 <u>       (4,000)  </u>

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