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Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that...

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 $ 57,700
Accounts receivable $ 45,000
Additional paid-in capital 50,000
Buildings (net) (4-year remaining life) 124,000
Cash and short-term investments 68,250
Common stock 250,000
Equipment (net) (5-year remaining life) 327,500
Inventory 103,000
Land 106,000
Long-term liabilities (mature 12/31/20) 183,500
Retained earnings, 1/1/17 252,350
Supplies 19,800
Totals $ 793,550 $ 793,550

During 2017, Abernethy reported net income of $101,000 while declaring and paying dividends of $13,000. During 2018, Abernethy reported net income of $152,000 while declaring and paying dividends of $39,000.

Assume that Chapman Company acquired Abernethy’s common stock for $696,650 in cash. As of January 1, 2017, Abernethy’s land had a fair value of $124,300, its buildings were valued at $200,000, and its equipment was appraised at $305,750. 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.)

Solutions

Expert Solution

Date general journal debit credit
December 31, 2017
Entry S

Common
Stock—Abernethy

 250000
Additional
Paid-in Capital—Abernethy		 50000
Retained
Earnings—1/1/17		 252350
Investment
in Abernethy		 552350
Entry A land (124300-106000) 18300
Building (200000-124000) 76000
Goodwill (balancing figure) 71750
Equipment (327500-305750) 21750
Investment
in Abernethy (696650-552350)		 144300
Entry I Equity
in Earnings of Subsidiary		 86350
Investment
in Abernethy (101000- 14650)		 86350
Entry D Investment
in Abernethy		 13000
Dividend
Paid		 13000
Entry E depreciation expense 14650
Equipment (21750/5) 4350
Buildings (76000/4) 19000
December 31, 2018.
Entry S common stock - Abernathy 250000
Additional
Paid-in Capital—Abernethy		 50000
Retained
Earnings—1/1/18 (252350+101000-13000)		 340350
Investment
in Abernethy		 640650
Entry A land 18300
Buildings (76000-19000) 57000
Goodwill 71750
Equipment (21750-4350) 17400
Investment
in Abernethy (144300-14650)		 129650
Entry I Equity
in Earnings of Subsidiary		 137350
Investment
in Abernethy (152000-14650)		 137350
Entry D Investment
in Abernethy		 39000
Dividend paid 39000
Entry E depreciation expense 14650
Equipment 4350
Buildings 19000

ekkarill92 answered 2 years ago
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