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 $ 57,700 $ 45,000 50,000 124,000 68,250 250,000 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 (mature 12/31/20) Retained earnings, 1/1/17 Supplies Totals 327,500 103,000 106,000 183,500 252,350 19,800 $ 793,550 $ 793,550 During 2017, Abernethy reported net income of $101,000 while declaring and paying dividends of $13,000. During 2018, Abernethy reported net income of $152,000 while declaring and paying dividends of $39,000. Assume that Chapman Company acquired Abernethy's common stock by paying $677,350 in cash. All of Abernethy's accounts are estimated to have a fair value approximately equal to present book values. Chapman uses the partial equity method to account for its investment. Prepare the 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.)

1. Prepare entry S to eliminate stockholders' equity accounts of subsidiary.

2. Prepare entry A to recognize goodwill portion of the original acquisition fair value.

3. Prepare entry I to eliminate intra-entity income accrual for the current year based on the parent's usage of the partial equity method.

4. Prepare entry D to eliminate intra-entity dividend transfers.

5. Prepare entry E.

6. Prepare entry *C.

7. Prepare entry S to eliminate beginning of year stockholders' equity accounts of subsidiary—the retained earnings balance has been adjusted for 2017 income and dividends.

8. Prepare entry A to recognize original goodwill balance.

9. Prepare entry I to eliminate Intra-entity Income accrual for the current year.

10. Prepare entry D to eliminate Intra-entity dividend transfers.

11. Prepare entry E.

Answer 1

Solution

The following are the consolidated worsheet entry for December 31, 2017 and December 31, 2018

Credit 1 CONSOLIDATED WORKSHEET ENTRY Particulars Debit Entry - S Common stock Abernethy 250000 Additional paid-in capital 50000 Retained earnings - 1/1/17 252350 Investment in Abernethy (To eliminate stockholders equity accounts of subsidiary) Purchase price allocation and annual excess fair value Acquisition value 677350 Book Value 552350 552350 2 125000 125000 3 101000 101000 4 13000 13000 5 6 7 Excess price paid over book value - 125000 Entry A Goodwill Investment in Abernethy (To recognize Goodwill portion of the acquisition) Entry 1 Equity earnings of subsidiary Investment in Abernethy (To eliminate intra entity income accrual) Entry D Investment in Abernethy Dividend paid (To eliminate inter-company dividend transfer) No entry needed because Goodwill is not amortized Entry C is not needed because equity method was applied Entry s Common Stock Abernethy Additional paid -in capital Retained earnings (252350+101000-13000) Investment in Abernethy (To eliminate stockholders equity accounts of subsidiary) Entry A Goodwill Investment in Abernethy (To recognize Goodwill) Entry 1 Equity in earnings of subsidiary Investment in Abernethy (To eliminate intra entity income accrual for the current year) Investment in Abernethy Dividend paid (To eliminate intra company dividend transfer) No entry needed - Goodwill not amortized 250000 50000 340350 640350 8 125000 125000 9 152000 152000 10 39000 39000 11