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On January 1, 2021, Beilich Enterprises bought 20% of the outstanding common stock of Wolfe Construction Company for $740
On January 1, 2021, Beilich Enterprises bought 20% of the outstanding common stock of Wolfe Construction Company for $740.0 million cash. Wolfe's net income for the year ended December 31, 2021, was $370.0 million. During 2021, Wolfe declared and paid cash dividends of $74.0 million. Beilich recorded the investment as follows:
Purchase
Investment in Wolfe Construction shares 740 million
Cash 740 million
Net income
Investment in Wolfe Construction shares (20% x $370.0 million) 74 million
Investment revenue 74 million
Dividends
Cash (20% x $74.0 million) 14.8 million
Investment in Wolfe Construction shares. 14.8 million
Required:
What would be the pretax amounts related to the investment that Beilich would report in its statement of cash flows for the year ended December 31, 2021?
Operating activities
?
Investing activities
?
Financing activities
?
Expert Solution
Operating activities= $14.8 million
Investing activities= -$740 million
Financing activities= NIL
Note:
Investment in Wolf construction shares will be shown in as outflow in Investing activities.
Net income shares is not shown shown in cash flow statement as it is not realized in cash to Bellich Enterprises.
Dividend received may be received in operating or investing activities at the option of the company. So, it is assumed that it is consolidated as operating activities.
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