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 | $ | 55,800 | |||
| Accounts receivable | $ | 42,500 | |||
| Additional paid-in capital | 50,000 | ||||
| Buildings (net) (4-year remaining life) | 209,000 | ||||
| Cash and short-term investments | 67,250 | ||||
| Common stock | 250,000 | ||||
| Equipment (net) (5-year remaining life) | 357,500 | ||||
| Inventory | 136,000 | ||||
| Land | 114,000 | ||||
| Long-term liabilities (mature 12/31/20) | 168,500 | ||||
| Retained earnings, 1/1/17 | 414,650 | ||||
| Supplies | 12,700 | ||||
| Totals | $ | 938,950 | $ | 938,950 | |
During 2017, Abernethy reported net income of $104,500 while declaring and paying dividends of $13,000. During 2018, Abernethy reported net income of $137,750 while declaring and paying dividends of $34,000.
Assume that Chapman Company acquired Abernethy’s common stock for $849,550 in cash. As of January 1, 2017, Abernethy’s land had a fair value of $128,300, its buildings were valued at $274,600, and its equipment was appraised at $334,750. 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.)
Solution:
Journal Entries in the books of Chapman Company: (Amounts in $)
|
Date |
Particulars |
Debit |
Credit |
|
January 01, 2017 |
1. Chapman Company acquires 100% stock of Abernethy Company Investment in Abernethy Co. A/c Dr. To Cash A/c (Being investment has been made) |
849,550 |
849,550 |
|
December 31, 2017 |
2. Investment in Abernethy Co. reported after adjusting post-acquisition profits Investment in Abernethy Co. A/c Dr. To Post-acquisition profits A/c (Being investment in Abernethy co. adjusted by post-acquisition profits of 2017) |
104,500 |
104,500 |
|
December 31, 2018 |
3. Investment in Abernethy Co. reported after adjusting post-acquisition profits Investment in Abernethy Co. A/c Dr. To Post-acquisition profits A/c (Being investment in Abernethy co. adjusted by post-acquisition profits of 2018) |
242,250 |
242,250 |
Working Note: (Amounts in $)
Computation of Goodwill:
Investment = $ 849,550
Less: Common Stock of Abernethy co. = ($ 250,000)
Less: Pre-acquisition Profits = ($ 458,800)
Goodwill = $ 140,750
Note: As per Equity Method of Consolidation, we will calculate Goodwill or Capital Reserve normally but it will not affect double-entry system i.e. there will not be any entry of recording Goodwill/Capital Reserve and it will be disclosed as a footnote of investments.
Note: As per Equity Method of Consolidation, Investments should be reported in a consolidated statement after revaluation with post-acquisition profits.
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 $ 50,900 Accounts receivable $ 40,400 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 128,000 Cash and short-term investments 68,750 Common stock 250,000 Equipment (net) (5-year remaining life) 407,500 Inventory 119,000 Land 82,000 Long-term liabilities (mature 12/31/20) 171,500 Retained earnings, 1/1/17 338,850 Supplies 15,600 Totals $ 861,250 $ 861,250 During 2017, Abernethy...
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 During 2017, Abernethy reported net income of $98,500 while declaring and paying dividends of $12,000. During 2018, Abernethy reported net income of $132,250 while declaring and paying dividends of $48,000. Assume that Chapman Company acquired Abernethy’s common stock for $699,850 in cash. As of January 1, 2017, Abernethy’s land had a fair value of $141,400,...
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 $ 59,900 Accounts receivable $ 43,700 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 123,000 Cash and short-term investments 80,500 Common stock 250,000 Equipment (net) (5-year remaining life) 270,000 Inventory 138,500 Land 118,500 Long-term liabilities (mature 12/31/20) 175,000 Retained earnings, 1/1/17 257,100 Supplies 17,800 Totals $ 792,000 $ 792,000 During 2017, Abernethy...
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 $ 52,400 Accounts receivable $ 48,600 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 179,000 Cash and short-term investments 61,250 Common stock 250,000 Equipment (net) (5-year remaining life) 260,000 Inventory 121,500 Land 105,000 Long-term liabilities (mature 12/31/20) 174,500 Retained earnings, 1/1/17 264,650 Supplies 16,200 Totals $ 791,550 $ 791,550 During 2017, Abernethy...
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 $ 52,800 Accounts receivable $ 49,500 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 174,000 Cash and short-term investments 84,000 Common stock 250,000 Equipment (net) (5-year remaining life) 315,000 Inventory 137,500 Land 90,500 Long-term liabilities (mature 12/31/20) 188,500 Retained earnings, 1/1/17 323,600 Supplies 14,400 Totals $ 864,900 $ 864,900 During 2017, Abernethy...
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 $ 52,800 Accounts receivable $ 49,500 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 174,000 Cash and short-term investments 84,000 Common stock 250,000 Equipment (net) (5-year remaining life) 315,000 Inventory 137,500 Land 90,500 Long-term liabilities (mature 12/31/20) 188,500 Retained earnings, 1/1/17 323,600 Supplies 14,400 Totals $ 864,900 $ 864,900 During 2017, Abernethy...
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 $ 52,400 Accounts receivable $ 48,600 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 179,000 Cash and short-term investments 61,250 Common stock 250,000 Equipment (net) (5-year remaining life) 260,000 Inventory 121,500 Land 105,000 Long-term liabilities (mature 12/31/20) 174,500 Retained earnings, 1/1/17 264,650 Supplies 16,200 Totals $ 791,550 $ 791,550 During 2017, Abernethy...
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 $ 54,200 Accounts receivable $ 42,900 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 192,000 Cash and short-term investments 73,500 Common stock 250,000 Equipment (net) (5-year remaining life) 245,000 Inventory 99,000 Land 128,500 Long-term liabilities (mature 12/31/20) 160,000 Retained earnings, 1/1/17 279,200 Supplies 12,500 Totals $ 793,400 $ 793,400 During 2017, Abernethy...
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...
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 $ 58,900 Accounts receivable $ 41,500 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 211,000 Cash and short-term investments 70,750 Common stock 250,000 Equipment (net) (5-year remaining life) 430,000 Inventory 139,000 Land 121,500 Long-term liabilities (mature 12/31/20) 174,000 Retained earnings, 1/1/17 498,450 Supplies 17,600 Totals $ 1,031,350 $ 1,031,350 During 2017, Abernethy...