Question

Problem 3-20 (LO 3-3b) 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 A During 2017 Abernethy reported net income of $129,000 while declaring and paying dividends of $16,000 During 2018. Abernethy reported net income of $176,000 while declaring and paying dividends of $38.000 Assume that Chapman Company acquired Abernethy's common stock for $731110 in cash. Assume that the equipment and long term liabilities had fair values of $338,650 and $156,340, iespectively, 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

А B с D 1 Journal Entries : 2 3 S.No Particulars Debit Credit 1 Entry Sto eliminate the stockholders equity subsidiary S 4 L 05 00 38 Common stock Additional paid -in capital Retained earnings Investment in Abernethy $ $ $ 250,000 50,000 323,600 $ 623,600 2 Prepare entry A to recognize allocations of determined in connections with acquisitions 11 12 13 A 14 Equipement Long term liabilities Goodwill Invetment in Abernethy $ $ $ 23,650 32,160 51,700 15 16 $ 107,510 17 3 Prepare entry I to elimanate the intercompany dividend 18 19 1 $ 16,000 Dividend Income Dividend paid 20 $ 16,000

4 Prepare entry E to recognize 2017 amortization expenses 22 23 24 E $ $ 4,730 8,040 25 Depreciation exense Interest Expense Equipment Long term liabilities 26 $ $ 4,730 8,040 27 28 5 Prepare entry C to convert parent company figures to equity method 29 30 31 С $ 100,230 Invetment in Abernethy Retained Earnings 32 $ 100,230 33 34 35 Net income of subsidiary = 129000 Less: Dividend = 16000 Less: Amortization and interest = 12770 Retained Earnings = 100230 36 37

6 Pepare Entry S to eliminate beginning of the yaer stockholders account of subsidiary 39 40 41 S 42 Common stock Additional paid in capital Retained earnings (323600 +129000 - 16000) Invetment in Abernethy $ $ $ 250,000 50,000 436,600 43 44 $ 736,600 45 7 Prepare Entry A to recognize allocations relating to Invetment balances 46 47 A 48 49 Equipment Long term Liabilities Goodwill Invetment in Abernethy $ $ $ 18,920 24,120 51,700 50 $ 94,740 51 52 8 Prepare entry I to eliminate the intercompany dividend 53 54 55 1 $ 38,000 Dividend Income Dividend Paid 56 $ 38,000

9 Prepare Entry E to recognize 2017 amortization expenses 58 59 60 E $ $ 4,730 8,040 61 Depreciation expense Interest expense Equipment Long term Liabilities 62 $ $ 4,730 8,040 63 64 65 66 $ 731,110 67 68 69 70 71 Calculation of goodwill Purchase price Less: Book value Common stock Additional Paid-in capital Retained Earnings Excess price paid Excess value of equipment over book value Shortvalue of long term liabilities Goodwill 72 73 74 75 $ $ $ $ $ $ $ (250,000) (50,000) (323,600) 107,510 (23,650) (32,160) 51,700 76