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				$	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 reported net income of $87,000 while declaring and paying dividends of $11,000. During 2018, Abernethy reported net income of $122,500 while declaring and paying dividends of $55,000.

Assume that Chapman Company acquired Abernethy’s common stock for $877,890 in cash. Assume that the equipment and long-term liabilities had fair values of $464,050 and $137,860, respectively, on the acquisition date. Chapman uses the initial value method to account for its 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

Ansever Page: No Cons pet en uies O 31, 2018 Consolidated um 31, 2014 U U Good will at the time of acquisition Purchase price - $814,890 Common sfecl < $250,000 Additional paid in Capital = $50,000 Retained earnings ilil14 = $464,900 Ercess price paid = $77890 – 250000 - 50000~464900 $112990 Excess value of equipment over book value = 4 39500 - 464050 = ($24550) Shoot value of long term liabilities over book value = 170500 - 137860 . = $32640 Goodwill. = 112990– 24550 - 32640 =$55800 . Goodwill - $55800

Page. Now Amortization of equipment - 24550 5years = $4910 Amortization of long term liabilities = . . $ 8160 32640 4 years Ending villue of equipment, sa/31/17 - 24550 -4910 = $19640 Ending value of long term liabilities, 12/31/17 = 32640–8160 = $24480 Retained earnings full (chapman) = 87000 -- 11000 -(4916 4 8 160) = $62930 Retained earnings 110118 = $ 464900 + 87000 – $11000 = $540900 Retained carnings illis = $540900

Date entry / . Page No ③ Debit , Credit $ 350,000 $50,000 $464900 $764900 $ 224550 $ 32640 $75800 $112990 Particular Common stock Additional paid in copibal Retained earnings illet Investment in Abenbetty - Equipment · Kong term licubilities - Goodwill Investment in Abernethy Dividend income Divided paid EnbiyA Entry I $11000 $110 Entry E $4910 $ 8160 $ 4710 $8960 $62930 Entry c Depreciation expense Interest expense Equipment Long term liabilities Investment in Abernethe Retained earning oldet common stock Additional paidin Capital Retained carnings tills Investment in Abernethy $62930 Entrys $ 250,000 $50,000 $ 540900 - $840900

Particular Enbringt Page. No 4 Debit I credit $19640 $24480 $55800 $99920 Enlig i $55000 Equipment long term liabilities Goodwill Povestment in Abernethy Dividend income Dividend paid Depreciation expense Interest expense . Equipment kong term liabilities $55000 Entry & $ 4910 $8160 $4910 $8160