Question

Chapman Company obtains 100 percent of Abernethy Company's stock on January 1, 2017. As of that date, Abernethy has the ollowing trial balance: Credit 56,700 Debit Accounts payable Accoutts receivable 43,800 50,000 dditional paid-in capital Baildinge (net) (4-year resaining life) Cash and short-tern investnests Common stock 143,000 80,250 250,000 Equipment (set) (5-year reaining lite Inventory Land 295,000 110,500 112,000 Long-term liabilities (nature 12/31/20) Retained earaings, 1/1/17 Supplies 171,000 268,750 11 900 $796,450 Totals 796,450 During 2017, Abernethy reported net income of $122,500 while declaring and paying dividends of $15,000. During 2018, Abernethy reported net income of $159,250 whille declaring and paying dividends of $49,000 Assume that Chapman Company acquired Abernethy's common stock for $698,050 in cash. As of January 1, 2017, Abernethy's land had a fair value of $123,900, ins buildings were valued at $219,400, and its equipment was appraised at $254,500. 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 fleld.) view transaction list Consolidation Worksheet Entries 9 10 Prepare entry S to eliminate stockholders' equity accounts of subsidiany December 31, 2017 Debit Credit cord entry Clear entry iew

Answer 1

First we need to calculate the value assets taken over is overvalued or undervalued Book Value As on Fair Value as on Overvalued or Assets 1/1/2017 1/1/2017 Undervalued B)-(A Land Buildin Equipment 112,000 143,000 295,000 123,900 219,400 254,500 11,900 76,400 40,500 Calculation of Goodwill if any in acquisition Amount in $ Description Purchase price Less: Book Value Common Stock Additional paid in capital Retained Earnings 1/1/17 Total Book Value of Aberneth Excess of Fair value Over Book value Allocation of Excess Fair value over book value: Land Buildin Equipment 698,050 250,000 50,000 268,750 568,750 129,300 11,900 76,400 (40,500) 47,800 81,500 Goodwill (129,300- 47,800

Calculation of Depreciation expenses on Excess Value allocated to specified assets Value as on 01/01/17 Life Depreciation per year Assets Land Buildin Equipment Goodwill Total 11,900 76,400 40,500 81,500 129,300 4 19,100 8,100 11,000 Calculation Unamortized Value of Excess value of assets acquired in acquisition Value as on 01/01/17 Depreciation per Value as on 01/01/18 Assets Land Buildin Equipment Goodwill Total ear (B A-B 11,900 76,400 40,500 81,500 129,300 11,900 57,300 32,400 81,500 118,300 19,100 8,100 11,000

Calculation of retained earnings at the end of the year 12/31/2017 and 12/31/2018 Description Retained Earnings 1/1/17 Add: Net Income during the vear 2017 Less: Dividends Paid 2017 Retained Earnings 12/31/17 Amount 268,750 122,500 (15,000) 376,250 Retained Earnings 1/1/18 Add: Net Income during the year Less: Dividends Paid Retained Earnings 12/31/18 376,250 159,250 (49,000) 486,500 Calculation of equity income in subsidia Description Year 2017 Income of Abernethy's during the vear 2017 Less: Depreciation during the year Equity income in Abernethy's income for the year 2017 Amount 122,500 (11,000) 111,500 Year 2018 Income of Abernethy's during the vear 2018 Less: Depreciation during the year Equity income in Aernethy's income for the year 2018 159,250 (11,000) 148,250