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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 $ 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 by paying $520,000 in cash. All of Abernethy’s accounts are estimated to have a fair value approximately equal to present book values. Chapman uses the partial equity method to account for its investment. Prepare the consolidation worksheet entries for December 31, 2017, and December 31, 2018.

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Fair value allocation and annual excess amortizations:
Abernethy fair value (consideration paid) $ 520,000
Book value   $-400,000
Excess fair value over book value (all goodwill)   $ 120,000
Account Debit Credit
Consolidation Entries as of December 31, 2017
Entry S
Common stock—Abernethy   $ 250,000
Additional paid-in capital $    50,000
Retained earnings—Abernethy—1/1/17 $ 100,000
     Investment in Abernethy   $400,000
(To eliminate stockholders' equity accounts of subsidiary)
Entry A
Goodwill   $ 120,000
     Investment in Abernethy   $120,000
(To recognize goodwill portion of the original acquisition fair value)
Entry I
Equity in earnings of subsidiary $    80,000
     Investment in Abernethy   $ 80,000
(To eliminate intra-entity income accrual)
Entry D
Investment in Abernethy   $    10,000
     Dividends declared $ 10,000
(To eliminate intra-entity dividend transfers)
Entry E—No Entry as not amortization
Consolidation Entries as of December 31, 2018
Entry C—No Entry as not amortization
Entry S
Common stock—Abernethy $ 250,000
Additional paid-in capital—Abernethy   $    50,000
Retained earnings—Abernethy—1/1/18 $ 170,000
     Investment in Abernethy   $470,000
(To eliminate beginning of year stockholders' equity accounts)
Entry A
Goodwill   $ 120,000
     Investment in Abernethy   $120,000
(To recognize original goodwill balance.)
Entry I
Equity in earnings of subsidiary $ 110,000
     Investment in Abernethy   $110,000
(To eliminate Intra-entity Income accrual for the current year.)
Entry D
Investment in Abernethy   $    30,000
     Dividends declared $ 30,000
(To eliminate Intra-entity dividend transfers.)
Equity E—No Entry

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