Question

Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that date, Abernethy has the following trial balance:

	Debit			Credit
Accounts payable				$	53,700
Accounts receivable	$	41,000
Additional paid-in capital					50,000
Buildings (net) (4-year remaining life)		184,000
Cash and short-term investments		77,250
Common stock					250,000
Equipment (net) (5-year remaining life)		400,000
Inventory		117,500
Land		107,500
Long-term liabilities (mature 12/31/20)					173,000
Retained earnings, 1/1/17					417,450
Supplies		16,900
Totals	$	944,150		$	944,150

During 2017, Abernethy reported net income of $98,000 while declaring and paying dividends of $12,000. During 2018, Abernethy reported net income of $128,250 while declaring and paying dividends of $39,000.

Assume that Chapman Company acquired Abernethy’s common stock for $851,300 in cash. As of January 1, 2017, Abernethy’s land had a fair value of $124,200, its buildings were valued at $254,400, and its equipment was appraised at $378,500. Chapman uses the equity method for this investment.

Prepare consolidation worksheet entries for December 31, 2017, and December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1-Prepare entry S to eliminate stockholders' equity accounts of subsidiary.

2Prepare entry A to recognize allocations attributed to fair value of specific accounts at acquisition date with residual fair value recognized as goodwill.

3.Prepare entry I to eliminate $98,000 income accrual for 2017 less $13,300 amortization recorded by parent using equity method

4-Prepare entry D to eliminate intra-entity dividend transfers

5-Prepare entry E to recognize current year amortization expense

6-Prepare entry S to eliminate beginning stockholders' equity of subsidiary—the Retained Earnings account has been adjusted for 2017 income and dividends. Entry *C is not needed because equity method was applied.

7-Prepare entry A to recognize allocations relating to investment—balances shown here are as of beginning of current year [original allocation less excess amortizations for the prior period

8-Prepare entry I to eliminate $128,250 income accrual less $13,300 amortization recorded by parent during 2018 using equity method.

9-Prepare entry D to eliminate intra-entity dividend transfers.

10-Prepare entry E to recognize current year amortization expense

Answer 1

Answer:

Answer-1:
Date	General Journal	Debit	Credit
Dec.31, 2017	Common stock-Abernethy	$ 2,50,000
	Additional paid in capital	50,000
	Retained earnings	4,17,450
	Investment in Abernethy		$ 7,17,450
Answer-2:
Date	General Journal	Debit	Credit
Dec.31, 2017	Land	$      16,700
	Building	70,400
	Goodwill	68,250
	Equipment		$    21,500
	Investment in Abernethy		1,33,850
Answer-3:
Date	General Journal	Debit	Credit
Dec.31, 2017	Equity in subsidiary earnings (98,000 - 13,300*)	$      84,700
	Investment in Abernethy		$    84,700
	* (70,400/4 - 21,500/5)
Answer-4:
Date	General Journal	Debit	Credit
Dec.31, 2017	Equity in subsidiary earnings	$      12,000
	Dividend paid		$    12,000
Answer-5:
Date	General Journal	Debit	Credit
Dec.31, 2017	Depreciation expense	$      13,300
	Equipment	4,300
	Building		$    17,600
Answer-6:
Date	General Journal	Debit	Credit
Dec.31, 2018	Common stock-Abernethy	$ 2,50,000
	Additional paid in capital	50,000
	Retained earnings	5,03,450
	Investment in Abernethy		$ 8,03,450
Answer-7:
Date	General Journal	Debit	Credit
Dec.31, 2017	Land	$      16,700
	Building	52,800
	Goodwill	81,550
	Equipment		$    17,200
	Investment in Abernethy		1,33,850
Answer-8:
Date	General Journal	Debit	Credit
Dec.31, 2017	Equity in subsidiary earnings (128,250 - 13,300*)	$ 1,14,950
	Investment in Abernethy		$ 1,14,950
	* (70,400/4 - 21,500/5)
Answer-9:
Date	General Journal	Debit	Credit
Dec.31, 2018	Equity in subsidiary earnings	$      39,000
	Dividend paid		$    39,000
Answer-10:
Date	General Journal	Debit	Credit
Dec.31, 2018	Depreciation expense	$      13,300
	Equipment	4,300
	Building		$    17,600