Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2
ID: 2331632 • Letter: C
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:
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 for $696,650 in cash. As of January 1, 2017, Abernethy’s land had a fair value of $124,300, its buildings were valued at $200,000, and its equipment was appraised at $305,750. Chapman uses the equity method for this 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.)
Debit Credit Accounts payable $ 57,700 Accounts receivable $ 45,000 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 124,000 Cash and short-term investments 68,250 Common stock 250,000 Equipment (net) (5-year remaining life) 327,500 Inventory 103,000 Land 106,000 Long-term liabilities (mature 12/31/20) 183,500 Retained earnings, 1/1/17 252,350 Supplies 19,800 Totals $ 793,550 $ 793,550Explanation / Answer
Common
Stock—Abernethy
Common
Stock—Abernethy
Paid-in Capital—Abernethy 50000 Retained
Earnings—1/1/17 252350 Investment
in Abernethy 552350 Entry A land (124300-106000) 18300 Building (200000-124000) 76000 Goodwill (balancing figure) 71750 Equipment (327500-305750) 21750 Investment
in Abernethy (696650-552350) 144300 Entry I Equity
in Earnings of Subsidiary 86350 Investment
in Abernethy (101000- 14650) 86350 Entry D Investment
in Abernethy 13000 Dividend
Paid 13000 Entry E depreciation expense 14650 Equipment (21750/5) 4350 Buildings (76000/4) 19000 December 31, 2018. Entry S common stock - Abernathy 250000 Additional
Paid-in Capital—Abernethy 50000 Retained
Earnings—1/1/18 (252350+101000-13000) 340350 Investment
in Abernethy 640650 Entry A land 18300 Buildings (76000-19000) 57000 Goodwill 71750 Equipment (21750-4350) 17400 Investment
in Abernethy (144300-14650) 129650 Entry I Equity
in Earnings of Subsidiary 137350 Investment
in Abernethy (152000-14650) 137350 Entry D Investment
in Abernethy 39000 Dividend paid 39000 Entry E depreciation expense 14650 Equipment 4350 Buildings 19000
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