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 Accounts payable Accounts receivable 5 56,780 s 43,800 Additional paid-in capital Buildings (net) (4-year remaining life) Cash and short-term investments Common stock Equipment (net) (s-year remaining life) Inventory Land Long-term liabilities (mature 12/31/20) Retained earnings, 1/1/17 Supplies 5e,869 143,000 80,250 250,8e 295,00 110,580 112,600 171,e00 268,750 11,988 Totals 796,450796,450 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 while declaring and paying dividends of $49,000 Assume that Chapman Company acquired Abernethy's common stock for $675.790 in cash. Assume that the equipment and long-term liabilities had fair values of $316,300 and $137.960, respectively 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 journel entry required" in the first account field.) < Prev 40, 4田 Next

Answer 1

Date	General Journal	Debit	Credit
Dec. 31, 2017
Entry S	Common Stock-Abernethy	250000
	Additional Paid in Capital	50000
	Retained Earnings, 1/1/17	268750
	Investment in Abernethy		568750
	(To eliminate stockholders' equity accounts of subsidiary)
Entry A	Equipment (316300-295000)	21300
	Long-Term Liabilities (137960-171000)	33040
	Goodwill	52700
	Investment in Abernethy (675790-568750)		107040
	(To recognize allocations determined above in connection with acquisition-date fair values)
Entry I	Dividend income	15000
	Dividends Paid		15000
	(To eliminate intercompany dividend payments recorded by parent as income)
Entry E	Depreciation Expense	4260
	Interest Expense	8260
	Equipment (21300/5)		4260
	Long-Term Liabilities (33040/4)		8260
	(To record 2017 amortization expense)
Dec. 31, 2018
Entry *C	Investment in Abernethy	94980
	Retained Earnings, 1/1/18 (122500-15000-4260-8260)		94980
	(To convert parent company figures to equity method by recognizing subsidiary's increase in book value for prior year)
Entry S	Common Stock-Abernethy	250000
	Additional Paid in Capital	50000
	Retained Earnings, 1/1/18 (268750+122500-15000)	376250
	Investment in Abernethy		676250
	((To eliminate beginning of year stockholders' equity accounts of subsidiary. The retained earnings balance has been adjusted for 2017 income and dividends)
Entry A	Equipment (21300-4260)	17040
	Long-Term Liabilities (33040-8260)	24780
	Goodwill	52700
	Investment in Abernethy		94520
	(To recognize allocations relating to investment—balances shown here are as of the beginning of the current year [original allocation less excess amortizations for the prior period])
Entry I	Dividend income	49000
	Dividends Paid		49000
	(To eliminate intercompany dividend payments recorded by parent as income)
Entry E	Depreciation Expense	4260
	Interest Expense	8260
	Equipment (21300/5)		4260
	Long-Term Liabilities (33040/4)		8260
	(To record 2018 amortization expense)