Table 1 Parent , Inc Actual Financial Statements for 2012 and Subsidiary Corporation Projected Financial Statements for2013 Subsidiary Parent 2012 2013 (Actual) (Projected) Sales Cost of Goods Sold Operating Expenses Income before Taxes Income Tax Expense Net Income $800,000 -485,000 -219,000 96,000 -38,400 $57,600 $100,000 -55,000 -10,000 35,000 -14,000 $21,000 Retained Earnings January 1 Add Net Income Deduct Dividends Retained Earnings December 31 $23,000 57,600 -38,000 $42,600 $14,500 21,000 -7,000 $28,500 Cash Accounts Receivable Inventory Property, Plant and Equipment Accumulated Depreciation Total Assets Accounts Payable Common Stock* Paid-in Capital in Excess of Par Retained Earnings Total Liabilities & Equities $36,200 39,000 26,000 673,000 -490,000 284,200 44,600 190,000 7,000 42,600 $284,200 $19,500 13,000 12,000 213,000 -28,000 229,500 21,000 150,000 30,000 28,500 $229,500 Price per share Percentage ownership $105 80% Inc Pro Forma Financial Statements for 201 Parent 2012 Actual Statement of Operations Sales Cost of Goods Sold Operating Expenses Income before Taxes Income Tax Expense Net Income Statement of Retained Earnings Retained Earnings January 1 Add Net Income Deduct Dividends Retained Earnings December 31 Balance Sheet Cash Accounts Receivable Inventory Property.600 $61.094 $313.50 par value.950 $5.600 $42.200 $39.500 $190.200 $44.594 $61. Subsidiary: $75 par value Cash Flow Statement Net cash flow from operating activities: Net income Noncash expenses.400) $57. revenues. gains and losses included in net income: Depreciation Decrease in accounts receivable Increase in accounts payable Increase in inventories Cash flow from operating activities $800.996) $61.000 $57.000) $66.490 ($40.780 $721.000 ($534.Parent .600 ($38.900 ($780) $113.594 $50.000 $26.364 .860) $102.000) ($219.800) $313.000 ($38.494 ($38.800 $1.000) $96.050 $26.200 $63. Plant and Equipment Accumulated Depreciation Total Assets Accounts Payable Common Stock* Paid-in Capital in Excess of Par Retained Earnings Total Liabilities & Equities *Parent: $12.650) ($248.000 $7.000 ($485.000 ($528.494 $23.000 ($490.000 $7.600 $190.094 $36.494 $44.000) $284.000 $673.000) $42.564 $37.000 $42.600 $284.600 2013 $880.000 $66. 364 $36.000) ($38.000) $27.000) ($38.564 .Cash flows from investing activities: Acquisition of equipment Net cash used by investing activities Cash flows from financing activities: Dividends paid Net cash used by financing activities Net increase in cash Cash at beginning of year Cash at end of year ($48.000) ($48.200 $63. 000 $44.430 $523.650 $529.000 $880.800 $248.530 $48.000 $48.000 $880.950 $881.ancial Statements for 2013 General Journal Accounts Receivable Sales Cash Accounts Receivable Cost of goods sold Inventory Inventory Accounts Payable Accounts Payable Cash Equipment Cash Depreciation expense Accumulated depreciation Operating expense Cash Income tax expense Cash Dividends Cash Income Summary Sales Cost of goods sold Operating expense Depreciation Income tax expense Income summary Debit $880.996 $40.800 $40.000 $881.000 $38.996 $863.860 $44.950 $528.650 $248.530 $523.860 $40.860 $248.306 .800 $44.650 $528.000 $528.000 Credit $880.996 $38.430 $529. Income summary Retained earnings Retained earnings Dividends $16.694 $16.000 .694 $38.000 $38. 000) ($219.000 ($534.000 $0 $0 $96.000 $0 $673.000 $70.054 $36.200 $61. Subsidiary: $75 par value Cash Flow Statement Net cash flow from operating activities: Net income Noncash expenses.454 .654 $50.000 ($528.490 $16.600 $284.000 $7.000 $7.000) $96.000 ($38.200 $721.500 $5.654 $65.Parent .000) $284.860) $102.200) $109.000) $70.054 $492.100 $170.454 $23. gains and losses included in net income: $800.454 ($38.050 $26. Inc Pro Forma Financial Statements for 2013 Parent 2012 Actual Statement of Operations Sales Cost of Goods Sold Operating Expenses Income before Taxes and interest Investment income Interest expense Income before Taxes Income Tax Expense Net Income Statement of Retained Earnings Retained Earnings January 1 Add Net Income Deduct Dividends Retained Earnings December 31 Balance Sheet Cash Accounts Receivable Inventory Investment in Subsidiary.000 $57.000 $42. Property.600 $0 $0 $190.200 $39.800) $492.600 $65.424 $37.400) $57.50 par value.780 $181. Inc.000 ($485.600 $42.800 ($10. Plant and Equipment Accumulated Depreciation Total Assets Accounts Payable Interest Payable Bonds Payable Common Stock* Paid-in Capital in Excess of Par Retained Earnings Total Liabilities & Equities *Parent: $12.200 $44.000 ($490.636) $65. revenues.600 ($38.000 $26.000) $42.650) ($248.600 2013 $880.090 ($43.000 $190. 950 $5.000 132.424 .224 ($170.Depreciation Income from Subsidiary Dividends from Subsidiary.100 ($780) $111.600 $1. Inc. Decrease in accounts receivable Increase in accounts payable Increase in interest payable Increase in inventories Cash flow from operating activities Cash flows from investing activities: Purchase of 80% of Subsidiary.000) 170.224 36.800 ($16.200 61.000 25.000 -38. stocks Acquisition of equipment Net cash used by investing activities Cash flows from financing activities: Issuance of bonds payable Dividends paid Net cash used by financing activities Net increase in cash Cash at beginning of year Cash at end of year $44.000) ($218.800) $5.000) ($48.900 $5. Inc. 800 $44.000 $170.000 $38.000 .000 Credit $880.000 $44.430 $523.000 $170.100 $5. Inc.636 $38.200 $5.100 $170.000 $10.060 $204.000 $170.800 $204.530 $523.950 $881.950 $528.650 $529.* Cash Debit $880.650 $528.636 $43.530 $48.060 $43.000 $881.General Journal Accounts Receivable Sales Cash Accounts Receivable Cost of goods sold Inventory Inventory Accounts Payable Accounts Payable Cash Equipment Cash Depreciation expense Accumulated depreciation Operating expense Cash Income tax expense Cash Dividends Cash Cash Bonds Payable Interest Expense Cash Interest payable Investment in Subsidiary.000 $48.430 $529. 600 $5.* Receipt of share of the dividend paid Investment in Subsidiary. Inc.800 $16.600 $16.000 $170.* Investment Income Share in Subsidiary income $168.*Purchase cost Direct costs Total investment Cash Investment in Subsidiary.800 .000 $2. Inc.000 $5. Property. Plant and Equipment Accumulated Depreciation Goodwill Total Assets Accounts Payable Interest Payable Bonds Payable Common Stock* Paid-in Capital in Excess of Par Retained Earnings $880.780 $181.000 ($28.860) $102.000) $35.000 $30.000 ($14.000) $70.000 $28.000 3 3 $150.100 $170.050 $26.000 $190. Inc.000 1 2 4 5 $42. Inc Pro Forma Financial Statements for 2013 Intercompany N Subsidiary o t 2013 e Parent 2013 Statement of Operations Sales Cost of Goods Sold Operating Expenses Income before Taxes and interest Investment income Interest expense Income before Taxes Income Tax Expense Net Income Statement of Retained Earnings Retained Earnings January 1 Add Net Income Deduct Dividends Minority Interest Retained Earnings December 31 Balance Sheet Cash Accounts Receivable Inventory Investment in Subsidiary.424 $37.500 3 3 3 .200) $109.200 $721.054 $14.654 $50.000 $7.650) ($248.800 ($10.054 $19.090 ($43.000 ($534.500 $61.500 $5.000 $0 $0 $35.500 $21.000) $229.000) ($10.000) $28.000 ($7.500 $21.454 ($38.600 $65.000 $70.636) $65.000) $21.000 $0 $213.800) $492.500 $13.000 $12.454 $100.Parent .000 ($55.490 $16.000 ($528. Subsidiary: $75 par value Cash Flow Statement Net cash flow from operating activities: Net income Noncash expenses.654 $229. Inc.100 ($780) $111.224 $36.000) ($48. Decrease in accounts receivable Increase in accounts payable Increase in interest payable Increase in inventories Cash flow from operating activities Cash flows from investing activities: Purchase of 80% of Subsidiary.800 ($16.454 $44. Inc.800) $5. revenues.50 par value.500 $65.000) ($218.000) $132.000) $170.424 Note 1 Unsold inventory in Parent Cost of this inventory to Subsidiary Gross margin Journal Entry Cost of sales Inventory (parent) Note 2 .900 $5.000 ($38.200 $61.000 $25.950 $5. stocks Acquisition of equipment Net cash used by investing activities Cash flows from financing activities: Issuance of bonds payable Dividends paid Net cash used by financing activities Net increase in cash Cash at beginning of year Cash at end of year $492.600 $1.1 2 3 Minority interest Total Liabilities & Equities *Parent: $12. gains and losses included in net income: Depreciation Income from Subsidiary Dividends from Subsidiary.224 ($170. Unsold inventory in Subsidiary Cost of this inventory to Parent Gross margin or unrealized profit Journal Entry Cost of sales Inventory (parent) Note 3 Common Stock (Subsidiary) Paid-in Capital in Excess of Par (Subsidiary Retained Earnings (Subsidiary) Goodwill Machinery (Subsidiary) Retained Earnings (Parents) Minority interest Investment in Subsidiary (Parent) Note 4 Depreciation of increase in fair value Depreciation Expense (parent) Accumulated depreciation (subsidiary) Note 5 Investment Income (parent) Retained earnings (parent) . 000 190.319 $71.455 0 -10.200 .000 -8.819 1 2 3 1200 4 13200 1600 195 181.445 -259.Intercompany Eliminations N o Debit Credit t e Consolidated 1600 195 240 16.200 -563.000 7.200 125.100 170.050 36.619 -45.000 70.985 0 935.100 135.619 $57.200 553.819 150000 30000 14500 3 11.924 50.040 13.800 $980.200 240 $80.255 -57.100 67.000 -585.636 $67.500 5.900 $70. 900 $553.000) 1600 1600 1600 .1600 195 240 3 $227.319 y to Subsidiary 3600 ($2.735 38.335 38.900 $233. 900 181.800 .200 iary (Parent) ase in fair value 240 240 ation (subsidiary) 16.200 1200 11200 38.800 16.500 13.000 14.000 30.alized profit 495 ($300) 195 195 195 cess of Par (Subsidiary) 150. 455 $0 ($10.200) $125.000 $7.200 ($563.494 ($38.100 $67.800) $313.494 $980.000) ($8. Property.000) $66.500 $80.040) $13.985 $0 $935.000 ($585.819 $38.564 $37.200 $553.594 $4. Subsidiary: $75 par value Earnings per share Current ratio Return on average stockholders equity $880.050 $26.319 $71.000 ($534.50 par value.319 $190.000 ($528.924 $50.19 40% .100) $135.094 $313.050 $36.600 $61.255 ($57.594 $50.56 2. Inc.094 $57.000 $190.52 24% $3.819 $63.900 $553.636) $67.619 ($45.Requirement Requirement 1 3 Statement of Operations Sales Cost of Goods Sold Operating Expenses Income before Taxes and interest Investment income Interest expense Income before Taxes Income Tax Expense Net Income Statement of Retained Earnings Retained Earnings January 1 Add Net Income Deduct Dividends Minority Interest Retained Earnings December 31 Balance Sheet Cash Accounts Receivable Inventory Investment in Subsidiary.445) ($259.490 $0 $0 $102. Plant and Equipment Accumulated Depreciation Goodwill Total Assets Accounts Payable Interest Payable Bonds Payable Common Stock* Paid-in Capital in Excess of Par Retained Earnings Minority interest Total Liabilities & Equities *Parent: $12.05 2.996) $61.000 $66.860) $102.000 $7.619 $42.650) ($248.490 ($40.000 $70.900) $70.500 $5.780 $721.100 $170. . As can be seen from the attached proforma financial statements. Inc as both the current ratio and the earnings per share are short term measures while the return on equity is a long term goal that should be pursued. Dear Martha. Inc. Inc would provide a higher return on equity. . it appears that the consolidation of Parent. Inc. I still recommend the purchase of 80% of Subsidiary. Although the Earnings per share and the current ratio would decrease as a result of the consolidation.Date TO: Martha Franklin FROM: Subject: Analysis of the Proposed Acquisition of 80% of Subsidiary.'s Common Stock Attachment: Proforma Financial Statements. and Subssidiary. . I and the earnings per should be pursued. .mon Stock he consolidation of of the consolidation. . Although the Earnings per share and the current ratio would decrease as a result of the consolidation. Inc as both the current ratio and the earnings per share are short term measures while the return on equity is a long term goal that should be pursued. Dear Martha. Inc.'s Common Stock Attachment: Proforma Financial Statements. it appears that the consolidation of Parent. Inc.Date TO: Martha Franklin FROM: Subject: Analysis of the Proposed Acquisition of 80% of Subsidiary. and Subssidiary. . As can be seen from the attached proforma financial statements. Inc would provide a higher return on equity. I still recommend the purchase of 80% of Subsidiary.
Report "Parent , Inc Actual Financial Statements for 2012 and Olsen"