Problem

Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1,2012. As of...

Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1,2012. As of that date, Abernethy has the following trial balance:

 

Debit

Credit

Accounts payable

 

$ 50,000

Accounts receivable

$ 40,000

 

Additional paid-in capital

 

50,000

Buildings (net) (4-year life)

120,000

 

Cash and short-term investments

60,000

 

Common stock

 

250,000

Equipment (net) (5-year life)

200,000

 

Inventory

90,000

 

Land

80,000

 

Long-term liabilities (mature 12/31/15)

 

150,000

Retained earnings, 1/1/12

 

100,000

Supplies

 

10,000

Totals

$ 600,000

$ 600,000

During 2012, Abernethy reported income of $80,000 while paying dividends of $10,000. During 2013, Abernethy reported income of $110,000 while paying dividends of $30,000.

Assume that Chapman Company acquired Abernethy’s common stock for $500,000 in cash. As­sume that the equipment and long-term liabilities had fair values of $220,000 and $120,000, respec­tively, on the acquisition date. Chapman uses the initial value method to account for its investment. Prepare consolidation worksheet entries for December 31,2012, and December 31,2013.

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