In: Accounting
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.)
Date | general journal | debit | credit |
December 31, 2017 | |||
Entry S |
Common |
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 | ||