Question

Problem 3-19 (LO 3-3a)

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				$	51,900
Accounts receivable	$	43,100
Additional paid-in capital					50,000
Buildings (net) (4-year remaining life)		175,000
Cash and short-term investments		75,500
Common stock					250,000
Equipment (net) (5-year remaining life)		439,500
Inventory		127,000
Land		116,500
Long-term liabilities (mature 12/31/20)					170,500
Retained earnings, 1/1/17					464,900
Supplies		10,700
Totals	$	987,300		$	987,300

During 2017, Abernethy reported net income of $87,000 while declaring and paying dividends of $11,000. During 2018, Abernethy reported net income of $122,500 while declaring and paying dividends of $55,000.

Assume that Chapman Company acquired Abernethy’s common stock for $873,250 in cash. As of January 1, 2017, Abernethy’s land had a fair value of $129,800, its buildings were valued at $243,800, and its equipment was appraised at $403,750. 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.)

Answer 1

Date	General Journal	Debit	Credit
Dec. 31, 2017
Entry S	Common Stock-Abernethy	250000
	Additional Paid in Capital	50000
	Retained Earnings, 1/1/17	464900
	Investment in Abernethy		764900
	(to eliminate stockholders’ account of subsidiary)
Entry A	Land (129800-116500)	13300
	Buildings (243800-175000)	68800
	Goodwill (balancing figure)	62000
	Equipment (403750-439500)		35750
	Investment in Abernethy (873250-764900)		108350
	(to recognize allocations attribute to fair value of specific accounts at acquisition date with residual fair value recognized as goodwill)
Entry I	Equity in Subsidiary Earnings	76950
	Investment in Abernethy (87000-(68800/4)+(35750/5))		76950
	(to eliminate income accrual for 2017 less amortization recorded by parent using equity method)
Entry D	Investment in Abernethy	11000
	Dividends Paid		11000
	(to eliminate intra-entity dividend transfers)
Entry E	Depreciation Expense	10050
	Equipment (35750/5)	7150
	Buildings (68800/4)		17200
	(to recognize current year amortization expense)
Dec. 31, 2018
Entry S	Common Stock-Abernethy	250000
	Additional Paid in Capital	50000
	Retained Earnings, 1/1/18 (464900+87000-11000)	540900
	Investment in Abernethy		840900
	(to eliminate beginning stockholders’ equity of subsidiary – the retained earnings account has been adjusted for 2017 income and dividends)
Entry A	Land	13300
	Buildings (68800-17200)	51600
	Goodwill	62000
	Equipment (35750-7150)		28600
	Investment in Abernethy (balancing figure)		98300
	(to recognize allocations relating to investment)
Entry I	Equity in Subsidiary Earnings	112450
	Investment in Abernethy (122500-(68800/4)+(35750/5))		112450
	(to eliminate income accrual for 2018 less amortization recorded by parent using equity method)
Entry D	Investment in Abernethy	55000
	Dividends Paid		55000
	(to eliminate intra-entity dividend transfers)
Entry E	Depreciation Expense	10050
	Equipment (35750/5)	7150
	Buildings (68800/4)		17200
	(to recognize current year amortization expense)