Question

C с Chapman Company obtains 100 percent of Abernethy Company's stock on January 1, 2020. As of that date, Abernethy has the following trial balance: Debit Credit $ 57,600 $ 40,600 50,000 126,000 65,750 Accounts payable Accounts receivable Additional paid-in capital Buildings (net) (4-year remaining life) Cash and short-term investments Common stock Equipment (net) (5-year remaining life) Inventory Land Long-term liabilities (nature 12/31/23) Retained earnings, 1/1/20 Supplies Totals 250,000 390,000 100,000 110,000 187,500 306,850 19,600 $851,950 $ 851,950 During 2020, Abernethy reported net income of $108,500 while declaring and paying dividends of $14,000. During 2021, Abernethy reported net income of $139,750 while declaring and paying dividends of $54,000. Assume that Chapman Company acquired Abernethy's common stock for $719,200 in cash. As of January 1, 2020, Abernethy's land had a fair value of $122.700, its buildings were valued at $185,200, and its equipment was appraised at $353,250. Chapman uses the equity method for this investment. Prepare consolidation worksheet entries for December 31, 2020, and December 31, 2021. (if no entry is required for a transaction/event, select "No journal entry required in the first account field.)

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 1/1/2020 1/1/2020 (Undervalued) (A) (B) (B)-(A) Land $ 110,000 $ 122,700 $ 12,700 Building $ 126,000 $ 185,200 $ 59,200 Equipment $ 390,000 $ 353,250 $ (36,750) Calculation of Goodwill if any in acquisition Amount in $ $ 719,200 $ 250,000 50,000 306,850 Description Purchase price Less: Book Value Common Stock Additional paid in capital Retained Earnings 1/1/20 Total Book Value of Abernethy Excess of Fair value Over Book value Allocation of Excess Fair value over book value: Land Building Equipment 606,850 112,350 $ $ 12,700 59,200 (36,750) 35,150 77,200 Goodwill (112,350 - 35,150) $

Calculation of Depreciation expenses on Excess Value allocated to specified assets Value as on 01/01/20 Life Assets (A) (B) Land $ 12,700 $ Building 59,200 Equipment (36,750) Goodwill 77,200 Total $ 112,350 4 Depreciation per year Value as on (C= A/B) 01/01/21 (A-C) $ $ 12,700 14,800 44,400 5 (7,350) (29,400) 77,200 $ 7,450 $ 104,900 Calculation of retained earnings at the end of the year 12/31/2021 Description Amount Retained Earnings 1/1/20 $ 306,850 Add: Net Income during the year 2020 108,500 Less: Dividends Paid 2020 (14,000) Retained Earnings 12/31/20 $ 401,350 Calculation of equity income in subsidiary Description Amount Year 2020 Income of Abernethy's during the year 2020 $ Less: Depreciation during the year Equity income in Abernethy's income for the year 2020 $ 108,500 (7,450) 101,050 $ Year 2021 Income of Abernethy's during the year 2021 Less: Depreciation during the year Equity income in Abernethy's income for the year 2021 139,750 (7,450) 132,300 $

Event Date Accounts Debit Credit Year 2020 December 31, 2020 *C No Entry Required S December 31,2020 Common stock Additional Paid in capital Retained Earnings -1/1/17 Investment in Abernethy ( Elimination Entries of Equity investment from the book value acquired) $ $ $ 250,000 50,000 306,850 $ 606,850 A December 31,2020 $ $ $ 12,700 59,200 77,200 Land Building Goodwill Equipment Investment in Abernethy (to record excess value assets acquired in acquisition) $ $ 36,750 112,350 1 December 31,2020 $ 101,050 Equity Income in Abernethy Investment in Abernethy (Elimination of Equity income from equity Investment) $ 101,050 D December 31,2020 $ 14,000 Investment in Abernethy Dividends Paid Recording of dividend income from subsidiary) $ 14,000 E December 31,2020 su $ $ 7,450 7,350 Depreciation Expenses Equipment Buildings Recording depreciation expense during the year) $ 14,800

Year 2021 December 31,2021 *C No Entry Required S December 31,2021 Common stock Additional Paid in capital Retained Earnings -1/1/18 Investment in Abernethy ( Elimination Entries of Equity investment from the book value acquired) $ $ $ 250,000 50,000 401,350 $ 701,350 A December 31, 2021 $ $ $ 12,700 44,400 77,200 Land Building Goodwill Equipment Investment in Abernethy (to record unamortized value of assets acquired as on 01/01/18) $ $ 29,400 104,900 I December 31,2021 $ 132,300 Equity Income in Abernethy Investment in Abernethy (Elimination of Equity income from equity Investment) $ 132,300 D December 31,2021 $ 54,000 Investment in Abernethy Dividends Paid Recording of dividend income from subsidiary) $ 54,000 E December 31,2021 $ $ 7,450 7,350 Depreciation Expenses Equipment Buildings Recording depreciation expense during the year) $ 14,800

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