In: Accounting
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 | $ | 56,400 | |||
Accounts receivable | $ | 43,900 | |||
Additional paid-in capital | 50,000 | ||||
Buildings (net) (4-year remaining life) | 217,000 | ||||
Cash and short-term investments | 76,750 | ||||
Common stock | 250,000 | ||||
Equipment (net) (5-year remaining life) | 367,500 | ||||
Inventory | 96,500 | ||||
Land | 122,000 | ||||
Long-term liabilities (mature 12/31/23) | 182,500 | ||||
Retained earnings, 1/1/20 | 396,250 | ||||
Supplies | 11,500 | ||||
Totals | $ | 935,150 | $ | 935,150 | |
During 2020, Abernethy reported net income of $103,500 while declaring and paying dividends of $13,000. During 2021, Abernethy reported net income of $145,250 while declaring and paying dividends of $47,000. Assume that Chapman Company acquired Abernethy’s common stock for $793,300 in cash. As of January 1, 2020, Abernethy’s land had a fair value of $134,000, its buildings were valued at $267,800, and its equipment was appraised at $336,250. Chapman uses the equity method for this investment.
Prepare consolidation worksheet entries for December 31, 2020, and December 31, 2021
1-Prepare entry *C to convert parent's beginning retained earnings to full accrual basis.
2-Prepare entry S to eliminate stockholders' equity accounts of subsidiary.
3-Prepare entry A to recognize allocations attributed to fair value of specific accounts at acquisition date with residual fair value recognized as goodwill.
4-Prepare entry I to eliminate the income accrual for 2020 less the amortization recorded by the parent using the equity method.
5-Prepare entry D to eliminate intra-entity dividend transfers.
6-Prepare entry E to recognize current year amortization expense.
7-Prepare entry *C to convert parent's beginning retained earnings to full accrual basis.
8-Prepare entry S to eliminate stockholders' equity accounts of subsidiary for 2021.
9-Prepare entry A to recognize allocations attributed to specific accounts at acquisition date for 2021.
10-Prepare entry I to eliminate the income accrual for 2021 less the amortization recorded by the parent using the equity method.
11-Prepare entry D to eliminate intra-entity dividend transfers.
12- Prepare entry E to recognize current year amortization expense.
Prepration of Consolidate work shteet
S.No. | Particular | Debit ($) | Credit ($) |
1. | Common Stock Account | 250,000 | |
Additional Paid In capital | 50,000 | ||
Retaind earning | 396,250 | ||
Investment Account | 696,250 | ||
(Investment is recorded) | |||
2. | Land Account | 11,000 | |
Building Account | 50,800 | ||
Goodwill Account | 71,750 | ||
Equipment Account | 36,500 | ||
Investment Account | 69,050 | ||
(Assets is record) | |||
3. | Equitiy Account | - | |
Investment Account | - | ||
(Equity of Share holder is being recorded) | |||
4. | Investment Account | 13,000 | |
Dividend Account | 13,000 | ||
(Dividend is made) | |||
5, | Deperciation Account | - | |
Equipment Account | 7,300 | ||
Building Account | 7,300 |
(Deperciation is made for fixed Assets) | |||
6, | Common Stock Account | 250,000 | |
Additional Paid in Capital | 50,000 | ||
Retained earning | - | ||
Investment Account | 300,000 | ||
(Transection is recorded in stock holder Account) | |||
7. | Land Account | 11,000 | |
Building Account | - | ||
Goodwill Account | 71,750 | ||
Investment Account | 82,750 | ||
(Acquisition on original fair value) | |||
8. | Equity in earning | - | |
Investment Account | - | ||
(Income Accrued for the current year) | |||
9. | Invest Account | 47,000 |
Divident Account | 47,000 | ||
(Divident Trasferr to entra entry) | |||
10. | Depreciation Account | - | |
Equipment Account | 7,300 | ||
Building Account | 7,300 | ||
(Current Year expense record) |
Working Note:
Calculation for the amount of building, equipment and goodwill is:
Bulding =267,800-217,000/4 Years
=50,800/ 4 years
=12,700
Land = 133,000-122,000
=11,000
Equipment = 393,500-430,000/5
=(36,500)/5
=7,300
Goodwill = Fair Value - Investment
= 793,300-696,250
=133,550