The Trial Balances of Ash Inc Other Information:
Ash Acquired Cinder in Three Stages

question 44

Essay

The trial balances of Ash Inc. and its subsidiary Cinder Corp. on December 31, 2018 are shown below: $\begin{array}{|l|l|l|} \hline& \text { Ash } & \text { Cinder } \\\hline \text { Imventory } & \$ 160,000 & \$ 100,000 \\\hline \text { Plant and Equipment (net) } & \$ 2,700,000 & \$ 700,000 \\\hline \text { Dividends Declared } & \$ 200,000 & \$ 100,000 \\\hline \text { Investment in Cinder } & \$ 700,000 &- \\\hline \text { Cost of Goods Sold } & \$ 650,000 & \$ 90,000 \\\hline \text { Other Expenses } & \$ 50,000 & \$ 10,000 \\\hline \text { Total Assets } & \$ 4,460,000 & \$ 1,000,000 \\\hline\\\hline \text { Liabilities } & \$ 1,000,000 & \$ 150,000 \\\hline \text { Common Shares } & \$ 1,660,000 & \$ 600,000 \\\hline \text { Retained Earnings } & \$ 600,000 & \$ 100,000 \\\hline \text { Sales and Other Revenue } & \$ 1,200,000 & \$ 150,000 \\\hline \text { Total Labilities and Equity } & \$ 4,460,000 & \$ 1,000,000 \\\hline\end{array}$ Other Information:
Ash acquired Cinder in three stages:
$\begin{array}{|l|l|}\hline \text { January 1, 2015: } & \begin{array}{l}\text { Ash purchased } 10,000 \text { shares for } \$ 100,000 . \text { Cinder's Retained Earnings were } \$ 40,000 \text { on that } \\\text { date. }\end{array} \\\hline \text { January 1, 2017: } & \begin{array}{l}\text { Ash purchased } 30,000 \text { shares for } \$ 450,000 . \text { Cinder's Retained Earnings were } \$ 80,000 \text { on that } \\\text { date. }\end{array} \\\hline \begin{array}{l}\text { December 31, } \\2018:\end{array} & \begin{array}{l}\text { Ash purchased } 20,000 \text { shares for } \$ 150,000 . \text { Cinder's Retained Earnings were } \$ 100,000 \text { on that } \\\text { date. }\end{array} \\\hline\end{array}$ Cinder was incorporated on January 1, 2013. On that date, Cinder issued 100,000 voting shares. Any difference between the cost and book value is attributable entirely to trademarks, which are to be amortized over 5 years. The company has neither issued nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1, 2017. These assets had a 10 year remaining life.
Intercompany sales of inventory during 2018 amounted to $250,000. Unrealized inventory profits for each company are shown below for 2018. The amounts indicate the amount of profit in each company's inventory. $$\begin{array} { | l | l | } \hline \text { Ash } & \\\hline \text { January 1, 2018: } & \$ 10,000 \\\hline \text { December 31, 2018 } & \$ 20,000 \\\hline & \\\hline \text { Cinder } & \\\hline \text { January 1, 2018: } & \$ 20,000 \\\hline \text { December 31, 2018 } & \$ 40,000 \\\hline\end{array}$$
All inventories on hand at the start of 2018 were sold to outsiders during the year. The net Incomes of both companies are evenly earned throughout the year. Both companies are subject to an effective corporate tax rate of 20%.
-Beta Corp. owns 80% of Gamma Corp. The Consolidated Financial Statements of Beta Corp. for 2018 and 2019 are shown below:
Beta Corp.
Consolidated Balance Sheet,
December 31, 2019 $\begin{array}{|l|l|l|} \hline& \mathbf{2 0 1 9} & \mathbf{2 0 1 8} \\\hline \text { Cash } & \$ 180,000 & \$ 40,000 \\\hline \text { Accounts Receivable } & \$ 300,000 & \$ 100,000 \\\hline \text { I muentory } & \$ 400,000 & \$ 100,000 \\\hline \text { Land } & \$ 160,000 & \$ 200,000 \\\hline \text { Plant and Equipment } & \$ 1,650,000 & \$ 1,170,000 \\\hline \text { Accumulated Depreciation } & (\$ 800,000) & \$ 770,000) \\\hline \text { Goodwill } & \$ 60,000 & \$ 60,000 \\\hline \text { Total Assets } & \$ 1,950,000 & \$ 900,000 \\\hline\\\hline \text { Accounts Pay able } & \$ 326,000 & \$ 40,000 \\\hline \text { Accrued Liabilities } & \$ 350,000 & \$ 140,000 \\\hline \text { Bonds Payable } & \$ 400,000 & \$ 100,000 \\\hline \text { Less Bond Discount } & \$ 40,000) & \$ 50,000) \\\hline \text { Non-Controlling Interest } & \$ 214,000 & \$ 200,000 \\\hline \text { Common Shares } & \$ 350,000 & \$ 350,000 \\\hline \text { Retained Earnings } & \$ 350,000 & \$ 120,000 \\\hline \text { Total Liabilities and Equity } & \$ 1,950,000 & \$ 900,000 \\\hline\end{array}$ Beta Corp.
Consolidated Income Statement,
For the year ended December 31, 2019
$\begin{array}{|l|l|l|}\hline \text { Sales } & & \$ 500,000 \\\hline \text { Cost of aales } & & \\\hline \text { Depreciation } & \$ 115,000 & \\\hline \text { Interest expense } & \$ 30,000 & \\\hline \text { Gain on land sale } & \$ 50,000 & \\\hline & & \$ 185,000) \\\hline\\\hline \text { Net income } && \$ 315,000 \\\hline\\\hline \text { Attributable to: } & & \\\hline \text { Shareholders of Parent } & & \$ 300,000 \\\hline \text { Non-Controlling Interest } && \$ 15,000 \\\hline\end{array}$ Other Information:
Beta purchased its interest in Gamma on January 1, 2015 for $360,000 when the company's net assets were valued at $300,000. The acquisition differential was allocated equally between goodwill and equipment, which was estimated to have a remaining useful life of ten years from the acquisition date.
Gamma reported a net income of $75,000 and paid dividends of $5,000 during 2019.
Beta issued $300,000 in bonds during the year. Beta reported an equity method net Income of $300,000 and paid $70,000 in dividends to its shareholders.
Required:
Prepare a Consolidated Statement of Cash Flows for Beta Corp. for 2019.

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