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 Accounts payable $ 58,900 Accounts receivable $ 41,500 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 211,000 Cash and short-term investments 70,750 Common stock 250,000 Equipment (net) (5-year remaining life) 430,000 Inventory 139,000 Land 121,500 Long-term liabilities (mature 12/31/20) 174,000 Retained earnings, 1/1/17 498,450 Supplies 17,600 Totals $ 1,031,350 $ 1,031,350 During 2017, Abernethy reported net income of $120,000 while declaring and paying dividends of $15,000. During 2018, Abernethy reported net income of $170,000 while declaring and paying dividends of $48,000. Assume that Chapman Company acquired Abernethy’s common stock for $907,300 in cash. Assume that the equipment and long-term liabilities had fair values of $451,050 and $143,400, 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 journal entry required" in the first account field.)

Answer 1

Step 1: Determine Annual Excess Amortizations:

The value of annual excess amortizations is arrived as below:

Excess of Consideration Paid over Book Value = 907,300 - (50,000 + 250,000 + 498,450) = $108,850

This excess value of $108,850 will get allocated and amortized as follows:

		Remaining Life/Maturity	Annual Excess Amortizations
Equipment (451,050 - 430,000)	21,050	5 Years	4,210 (21,050/5)
Long-Term Liabilities (174,000 - 143,400)	30,600	4 Years	7,650 (30,600/4)
Goodwill (108,850 - 21,050 - 30,600)	48,350	Indefinite	0
Total	100,000		11,860

_____

Step 2: Consolidation Worksheet Entries for 2017 and 2018:

The consolidation worksheet entries for the 2 years are prepared as below:

	Debit	Credit
Consolidation Entries as of December 31, 2017
Entry S
Common Stock-Abernethy	$250,000
Additional Paid-in Capital	$50,000
Retained Earnings-1/1/2017	$498,450
Investment in Abernethy		$798,450
(To eliminate stockholder's equity accounts of subsidiary)
Entry A
Equipment	$21,050
Long-Term Liabilities	$30,600
Goodwill	$48,350
Investment in Abernethy		$108,850
(To allocate excess of consideration paid over book value)
Entry I
Dividend Income	$15,000
Dividends Paid		$15,000
(To eliminate intercompany dividend payments recorded by parent company as income)
Entry E
Depreciation Expense	$4,210
Interest Expense	$7,650
Equipment		$4,210
Long-Term Liabilities		$7,650
(To record amortization expense for 2017)
Consolidation Entries as of December 31, 2018
Entry*C
Investment in Abernethy (120,000 - 15,000 - 11,860)	$93,140
Retained Earnings-1/1/2018 (Chapman)		$93,140
(To record conversion of parent company figures to equity method)
Entry S
Common Stock-Abernethy	$250,000
Additional Paid-in Capital	$50,000
Retained Earnings-1/1/2017	$498,450
Investment in Abernethy		$798,450
(To eliminate opening stockholder's equity accounts of subsidiary)
Entry A
Equipment (21,050 - 4,210)	$16,840
Long-Term Liabilities (30,600 - 7,650)	$22,950
Goodwill	$48,350
Investment in Abernethy		$88,140
(To recognize allocations relating to investment-balances)
Entry I
Dividend Income	$15,000
Dividends Paid		$15,000
(To eliminate intercompany dividend payments recorded by parent company as income)
Entry E
Depreciation Expense	$4,210
Interest Expense	$7,650
Equipment		$4,210
Long-Term Liabilities		$7,650

Do leave a thumbs up : )

Answer 2

second part is wrong