Question

Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that date, Abernethy has the following trial balance:

	Debit			Credit
Accounts payable				$	57,300
Accounts receivable	$	42,200
Additional paid-in capital					50,000
Buildings (net) (4-year remaining life)		214,000
Cash and short-term investments		82,250
Common stock					250,000
Equipment (net) (5-year remaining life)		375,000
Inventory		90,500
Land		117,000
Long-term liabilities (mature 12/31/23)					170,000
Retained earnings, 1/1/20					409,650
Supplies		16,000
Totals	$	936,950		$	936,950

During 2020, Abernethy reported net income of $117,500 while declaring and paying dividends of $15,000. During 2021, Abernethy reported net income of $171,250 while declaring and paying dividends of $55,000.

Assume that Chapman Company acquired Abernethy’s common stock for $816,280 in cash. Assume that the equipment and long-term liabilities had fair values of $396,950 and $140,720, respectively, on the acquisition date. Chapman uses the initial value method to account for its investment.

Prepare consolidation worksheet entries for December 31, 2020, and December 31, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Prepare entry S to eliminate stockholders' equity accounts of subsidiary.
• Prepare entry A to recognize allocations in connection with acquisition-date fair values.
• Prepare entry I to eliminate intra-entity dividends.
• Prepare entry E to recognize 2020 amortization expense.
• Prepare entry *C to convert parent company figures to equity method.
• Prepare entry S to eliminate stockholders' equity accounts of subsidiary for 2021.
• Prepare entry A to recognize allocations attributed to specific accounts at acquisition date for 2021.
• Prepare entry A to recognize allocations in connection with acquisition-date fair values.
• Prepare entry E to recognize 2021 amortization expense.

Answer 1