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 $ 54,200 $ 42,900 50,000 192,000 73,500 250,000 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 245,000 99,000 128,500 160,000 279,200 12,500 $793,400 $ 793,400 During 2017, Abernethy reported net income of $120,500 while declaring and paying dividends of $15,000. During 2018, Abernethy reported net income of $172,000 while declaring and paying dividends of $40,000. Assume that Chapman Company acquired Abernethy's common stock by paying $771,200 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.)

Tasks:

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

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

Prepare entry D to eliminate intra-entity dividend transfers

Prepare entry E

Prepare entry *C.

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

Prepare entry A to recognize original goodwill balance

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

Prepare entry D to eliminate Intra-entity dividend transfers

Prepare entry E

Answer 1

DATE	PARTICULARS	DEBIT	CREDIT
DEC 31 2017	common stock abernethy	2500000
	additional paid in capital	50000
	retained earnings	279200
	investment in Abernethy		579200
	equipment	22150
	long term liabilities	32240
	Goodwill	112290
	investment in Abernethy		166680
	Total asset	793400
	(-) account payable	54200
	(-) long term liabilities	160000
		579200
	dividend income	15000
	dividend paid		15000
	depreciation expense(22150/5)	4430
	interest expense(32240/4)	8060
	equipement		4430
	long term liabilities		8060
DEC 31 2018	common stock abernethy	250000
	additional paid in capital	50000
	retained earnings (1/1/18) RE(1/1/17)+Net income of 1/1/17 - dividend declared	384700
	investment in Abernethy		684700
	equipment(22150-4430)	17720

	long term liabilities(32240-8060)	24180
	goodwill	112290
	investment in abernethy		154190
	dividend income	40000
	dividend payable		40000
	depreciation expense	4430
	interest expense	8060
	equipment		4430
	long term liabilities		8030