Question 3 [25 marks] Part A Merida Inc. purchases a 90% interest in the common stock of Cosumel Corporation on January 1, 2016, for an agreed priced of $495,000. Merida Inc. issues $400,000 of bonds to Cosumel shareholders plus $95,000 cash as a payment. Cosumel's balance sheet on the acquisition date is as follows: Cash Accounts receivable Property, plant, and equipment Total Assets $60,000 95,000 460,000 4 $615,000 Total Liabilities and Equity Accounts payable Long-term liabilities Common stock ($10 par) Retained earnings Cash Accounts receivable Property, plant, and equipment (net) Goodwill Accounts payable Bonds payable Long-term liabilities NCI Controlling interest: Common stock ($10 par) Additional paid-in capital Retained earnings Total Required: Cosumel's equipment is understated by $20,000 and has a remaining depreciable life of five years. Any remaining excess is attributable to goodwill. In addition to the bonds issued as part of the purchase, Merida Inc sold additional bonds in the amount of $100,000. Consolidated net income for 2016 is $92,300 of which the non-controlling interest share is $4,600. Cosumel pays $10,000 in dividends to all shareholders. No plant assets are purchased or sold during 2016. Comparative balance sheet data are as follows: December 31, 2015 Parent only $ 82,000 120,000 870,000 $45,000 120,000 (52,000) (80,000) 150,000 300,000 $615,000 (200,000) (300,000) (440,000) 0 December 31, 2016 Consolidated $ 187,700 161,000 1,277,600 80,000 (80,000) (500,000) (40,000) (58,600) (200,000) (300,000) (527,700) 0 Prepare a consolidated statement of cash flows for the year ended December 31, 2016, for Merida Inc. and its subsidiary. Supporting schedules should be in good form. [18 marks] TURN OVER

Question 3 [25 marks] Part A Merida Inc. purchases a 90% interest in the common stock of Cosumel Corporation on January 1, 2016, for an agreed priced of $495,000. Merida Inc. Issues $400,000 of bonds to Cosumel shareholders plus $95,000 cash as a payment. Cosumel's balance sheet on the acquisition date is as follows: Assets Liabilities and Equity Cash $60,000 Accounts payable $45,000 Accounts receivable Property, plant, and equipment 95,000 Long-term liabilities 460,000 Common stock ($10 par) 120,000 150,000 Retained earnings 300,000 Total $615,000 Total $615,000 . Cosumel's equipment is understated by $20,000 and has a remaining depreciable life of five years. Any remaining excess is attributable to goodwill. In addition to the bonds issued as part of the purchase, Merida Inc sold additional bonds in the amount of $100,000. Consolidated net income for 2016 is $92,300 of which the non-controlling interest share is $4,600. Cosumel pays $10,000 in dividends to all shareholders. No plant assets are purchased or sold during 2016. Comparative balance sheet data are as follows: December 31, 2015 December 31, Parent only 2016 Consolidated Cash $82,000 $ 187,700 Accounts receivable 120,000 Property, plant, and equipment (net) 870,000 161,000 1,277,600 Goodwill 80,000 Accounts payable (52,000) (80,000) Bonds payable (500,000) Long-term liabilities (80,000) (40,000) NCI (58,600) Controlling interest: Common stock ($10 par) (200,000) (200,000) Additional paid-in capital (300,000) (300,000) Retained earnings (440,000) (527,700) Total 0 0 Required: Prepare a consolidated statement of cash flows for the year ended December 31, 2016, for Merida Inc. and its subsidiary. Supporting schedules should be in good form. [18 marks] TURN OVER