Allen Co Held 80% of the Common Stock of Brewer Inc

question 26

Essay

Allen Co. held 80% of the common stock of Brewer Inc. and 40% of this subsidiary's convertible bonds. The following consolidated financial statements were for 2012 and 2013. Additional Information:
1. Bonds were issued during 2013 by the parent for cash.
2. Amortization of a database acquired in the original combination amounted to $7,000 per year.
3. A building with a cost of $84,000 but a $42,000 book value was sold by the parent for cash on May 11, 2013.
4. Equipment was purchased by the subsidiary on July 23, 2013, using cash.
5. Late in November 2013, the parent issued common stock for cash.
6. During 2013, the subsidiary paid dividends of $14,000.
Required:
Prepare a consolidated statement of cash flows for this business combination for the year ending December 31, 2013. Either the direct method or the indirect method may be used.

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Definitions:

Money Demand Curve

A graphical representation showing the relationship between the quantity of money people want to hold and the interest rate, under the assumption all other factors remain constant.

Opportunity Cost

The consequence of losing possible gains from various options when one preference is made.

Interest Rate

The cost of borrowing money or the return for investing money, usually expressed as a percentage per annum.

Money Demand

The desire to hold cash or liquid assets rather than making investments, influenced by interest rates, income levels, and inflation.