Power Corporation's controller has just finished preparing a consolidated balance sheet,income statement,and statement of changes in retained earnings for the year ended December 31,20X9.Power owns 80 percent of Setwork Corporation's stock,which it acquired at underlying book value on November 1,20X6.At that date,the fair value of the noncontrolling interest was equal to 20 percent of Setwork Corporation's book value.The following information is available:
Consolidated net income for 20X9 was $160,000.
Setwork reported net income of $50,000 for 20X9.
Power paid dividends of $30,000 in 20X9.
Setwork paid dividends of $10,000 in 20X9.
Power issued common stock on February,18,20X9,for a total of $100,000.
Consolidated wages payable decreased by $6,000 in 20X9.
Consolidated depreciation expense for the year was $15,000.
Consolidated accounts receivable decreased by $20,000 in 20X9.
Bonds payable of Power with a book value of $102,000 were retired for $100,000 on December 31,20X9.
Consolidated amortization expense on patents was $10,000 for 20X9.
Power sold land that it had purchased for $75,000 to a nonaffiliate for $80,000 on June 10,20X9.
Consolidated accounts payable decreased by $7,000 during 20X9.
Total purchases of equipment by Power and Setwork during 20X9 were $180,000.
Consolidated inventory increased by $36,000 during 20X9.
There were no intercompany transfers between Power and Setwork in 20X9 or prior years except for Setwork's payment of dividends.Power uses the indirect method in preparing its cash flow statement.
-Based on the preceding information,what was the change in cash balance for the consolidated entity for 20X9?
A)Increase of $49,000
B)Decrease of $66,000
C)Increase of $17,000
D)Increase of $32,000

Question

Quizplus · Accepted Answer

To calculate the change in cash balance using the indirect method, start with the consolidated net income and adjust for non-cash transactions and changes in working capital:1. Start with consolidated net income: $160,0002. Adjust for non-cash expenses:   - Add back depreciation expense: $15,000   - Add back amortization expense: $10,0003. Adjust for gains/losses on sales of assets:   - Subtract gain on sale of land (since it's a non-operating activity and the cash received is considered separately): $80,000 - $75,000 = $5,0004. Adjust for changes in working capital:   - Decrease in accounts receivable adds to cash: $20,000   - Decrease in wages payable reduces cash: -$6,000   - Decrease in accounts payable reduces cash: -$7,000   - Increase in inventory reduces cash: -$36,0005. Consider other cash flows:   - Dividends paid by Power: -$30,000 (reduces cash)   - Dividends paid by Setwork: -$10,000 (but only 80% impact on Power, so -$8,000 considering noncontrolling interest)   - Issuance of common stock increases cash: $100,000   - Purchase of equipment reduces cash: -$180,000   - Retirement of bonds payable for less than book value increases cash (difference): $2,000   - Sale of land increases cash: $80,000Calculation:$160,000 + $15,000 + $10,000 - $5,000 + $20,000 - $6,000 - $7,000 - $36,000 - $30,000 - $8,000 + $100,000 - $180,000 + $2,000 + $80,000 = $17,000 increase in cash balance.

Power Corporation's Controller Has Just Finished Preparing a Consolidated Balance