Scenario 3-1
Pedro Purchased 100% of the Common Stock of the Sanburn

question 26

Short Answer

Scenario 3-1
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:
$\begin{array}{lrr} & 20 \mathrm{X} 1 & 20 \mathrm{X} 2 \\\text { Net income } & \$ 80,000 & \$ 90,000 \\\text { Dividends paid } & 10,000 & 10,000\end{array}$
-Refer to Scenario 3-1. Using the simple equity method, which of the following amounts are correct?

Distinction between cash inflows and outflows in financing activities, and the understanding of their impact on cash flow.

Evaluating cash flow effects of transactions and events, including loss from disposal of assets or changes in account balances.

Ability to discern between operating, investing, and financing activities within various scenarios.

Understanding the concept of cash inflows and outflows in direct method statements and the adjustment process for non-cash transactions.