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				$	50,000
Accounts receivable	$	40,000
Additional paid-in capital					50,000
Buildings (net) (4-year remaining life)		120,000
Cash and short-term investments		60,000
Common stock					250,000
Equipment (net) (5-year remaining life)		200,000
Inventory		90,000
Land		80,000
Long-term liabilities (mature 12/31/20)					150,000
Retained earnings, 1/1/17					100,000
Supplies		10,000
Totals	$	600,000		$	600,000

During 2017, Abernethy reported net income of $80,000 while declaring and paying dividends of $10,000. During 2018, Abernethy reported net income of $110,000 while declaring and paying dividends of $30,000.

Assume that Chapman Company acquired Abernethy’s common stock for $490,000 in cash. As of January 1, 2017, Abernethy’s land had a fair value of $90,000, its buildings were valued at $160,000, and its equipment was appraised at $180,000. 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

Solution:-

Journal Entries :

Date	Particulars	Amount	Amount
December 31, 2017	Common Stock - Abernethy's	$250,000
	Additional paid-in-capital	$50,000
	Retained Earnings (1/1/2017)	$100,000
	Investment in Abernethy's		$400,000
2017	Land ($90,000 - $80,000)	$10,000
	Building ($160,000 - $120,000)	$40,000
	Goodwill	$60,000
	Equipment ($200,000 - $180,000)		$20,000
	Investment in Abernethy's		$90,000
2017	Equity in subsidiary earnings	$74000
	Investment in Abernethy's		$74000
2017	Investment in Abernethy's	$10,000
	Dividend paid		$10,000
2017	Depreciation Expense	$6000
	Equipment ($20000 ÷ 5years)	$4000
	Buildings ($40,000 ÷ 4 years life)		$10000
December 31
2018	Common Equity - Abernethy's	$250,000
	Additional paid-in-capital	$50,000
	Retained Earnings (1/1/2018) ($100,000 + $80,000 - $10,000)	$170,000
	Investment in Abernethy's		$470,000
2018	Land	$10,000
	Building ($40,000 - $10000)	$30,000
	Goodwill	$60,000
	Equipment ($20,000 - $4000)		$16000
	Investment in Abernethy's		$84000
2018	Equity in subsidiary earnings	$104000
	Investment in Abernethy's		$104000
2018	Investment in Abernethy's	$30000
	Dividend paid		$30000
2018	Depreciation Expense	$6000
	Equipment ($20000 - $4000) = $16000 / 4 years	$4000
	Buildings ($40,000 - $10,000) = $30,000 / 3 years		$10000