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Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that...

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.

Solutions

Expert Solution

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


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