Required data: Gioia company acquired some of the 65,000 shares of outstanding c

Question

Required data:

Gioia company acquired some of the 65,000 shares of outstanding common stock (no par) of Tristezza corporation during 2011 as a long-term investment. The annual accounting period for both companies ends decemeber 31. The following transactions occured during 2011

Jan 10. Purchased 17,875 shares of Tristezza common stock at $11 per share
Dec 31. (the following)
a.Received the 2011 financial statmenets of tritezza corporation that reported net income of 80,000
b. Tristezza corp. declared and paid a cash divdidend of $0.60 per share.
c. Determined the market price of Tristezza stock to be $10 per share

Questions:

1. On the current year cash flow statement, how would the investing section of the statement be affected by the precedding transactions?

2.On the current year cash flow statement (indirect method) how would the equity in the earnings of the affiliated company and the dividends from the affiliated company affect the operating section? Explain?

Explanation / Answer

1) . On the current year cash flow statement, how would the investing section of the statement be affected by the precedding transactions?
Golia company 's cash flow statement Cash flow from investment actvities: inflow Devidend received 39000 out flow cash out flow from purchases 196625 out flow loss on longteem investment 17875 negaitive cash flow from investing activities -175500 total cash flow from operaions -203775 Tristezza corporations' cash flow statemetnt Fiancing activites: inflow Shares issued 196625 out flow Dividend paid 39000 Positve cash flow from finacing activitie 157625 total cash flow from opeartions 157625 Note: Here I have preapered both company's cash flow statements,please observe. 2) through indirect method the Tristezza corporations' can't be effected ..on it cash flow from operations. cash flow statemet prepared with indirect menthod: net income 80000 inflow no effect out flow no effect cash flow from operations 80000 Golia company 's cash flow statement Cash flow from investment actvities: inflow Devidend received 39000 out flow cash out flow from purchases 196625 out flow loss on longteem investment 17875 negaitive cash flow from investing activities -175500 total cash flow from operaions -203775

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