Problem 6-1 (LO 1) Cash flow, year subsequent to purchase. Marcus Company is an 80% owned subsidiary of Luis Company. The interest in Marcus is purchased on January 1, 20X1, for $640,000 cash. At that date, Marcus has stockholders’ equity of $650,000. The excess price is attributed to equipment with a 5-year life undervalued by $25,000 and to goodwill.

 

The following comparative consolidated trial balances apply to Luis Company and its subsidiary, Marcus:

 

 

 

December 31, 20X1

 

December 31, 20X2

 

 

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                      16,000                                           39,500

 

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                             120,000                                        160,000

 

Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . .                                        200,000                                        300,000

 

Property, Plant, and Equipment . . . . . . . . . . . . . . . . . .                                      3,005,000                                   3,355,000

 

Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . .                                   (1,081,000)                                  (1,282,000) Investment in Charles Corporation (30%) . . . . . . . . . .                                                                                                                                           244,500 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                       125,000                                           125,000

 

Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                        (117,000)                                       (200,000)

 

Bonds Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                           (100,000)                                       (400,000)

 

Noncontrolling Interest . . . . . . . . . . . . . . . . . . . . . . . .                                         (167,000)                                       (179,000) Controlling Interest:

 

Common Stock (par) . . . . . . . . . . . . . . . . . . . . . . . .                                 (1,000,000)                                  (1,000,000)

 

Additional Paid-In Capital in Excess of Par . . . . . . .                                       (650,000)                                       (650,000) Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                (351,000)                                       (513,000)

 

                                                            

 

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                    0                                       0

 

                                                            

 

 

 

The following 20X2 information is available for the Luis and Marcus companies:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Required

 

a.    Marcus purchases equipment for $50,000.

 

b.    Marcus issues $300,000 of long-term bonds and later uses the proceeds to purchase a new building.

 

c.    On January 1, 20X2, Luis purchases 30% of the outstanding common stock of Charles Cor- poration for $230,000. This is an influential investment. Charles’s stockholders’ equity is

 

$700,000 on the date of the purchase. Any excess cost is attributed to equipment with a 10- year life. Charles reports net income of $80,000 in 20X2 and pays dividends of $25,000.

 

d.    Controlling share of consolidated income for 20X2 is $262,000; the noncontrolling interest in consolidated net income is $15,000. Luis pays $100,000 in dividends in 20X2; Marcus pays $15,000 in dividends in 20X2.

Prepare the consolidated statement of cash flows for 20X2 using the indirect method. Any sup- porting calculations (including a determination and distribution schedule) should be in good form