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

Question

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

During 2012, Abernethy reported income of $129,000 while paying dividends of $16,000. During 2013, Abernethy reported income of $176,000 while paying dividends of $38,000.

Assume that Chapman Company acquired Abernethy’s common stock for $731,110 in cash. Assume that the equipment and long-term liabilities had fair values of $338,650 and $156,340, respectively, on the acquisition date. Chapman uses the initial value method to account for its investment.

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 $ 52,800 Accounts receivable $ 49,500 Additional paid-in capital 50,000 Buildings (net) (4-year life) 174,000 Cash and short-term investments 84,000 Common stock 250,000 Equipment (net) (5-year life) 315,000 Inventory 137,500 Land 90,500 Long-term liabilities (mature 12/31/15) 188,500 Retained earnings, 1/1/12 323,600 Supplies 14,400 Totals $ 864,900 $ 864,900

During 2012, Abernethy reported income of $129,000 while paying dividends of $16,000. During 2013, Abernethy reported income of $176,000 while paying dividends of $38,000.

Assume that Chapman Company acquired Abernethy’s common stock for $731,110 in cash. Assume that the equipment and long-term liabilities had fair values of $338,650 and $156,340, 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 General Journal Debit Credit Dec. 31, 2012 Entry S (Click to select)Additional Paid-In CapitalInvestment in AbernethyCommon Stock-AbernethyDepreciation ExpenseDividends PaidEquipmentInterest ExpenseRetained Earnings, 1/1/12 (Click to select)Depreciation ExpenseCommon Stock-AbernethyInvestment in AbernethyDividends PaidRetained Earnings, 1/1/12Interest ExpenseAdditional Paid-In CapitalEquipment (Click to select)Interest ExpenseCommon Stock-AbernethyInvestment in AbernethyRetained Earnings, 1/1/12EquipmentAdditional Paid-In CapitalDividends PaidDepreciation Expense (Click to select)Dividends PaidInvestment in AbernethyCommon Stock-AbernethyRetained Earnings, 1/1/12GoodwillDividend IncomeAdditional Paid-In CapitalInterest Expense Entry A (Click to select)Depreciation ExpenseEquipmentLong-Term LiabilitiesInvestment in AbernethyRetained Earnings, 1/1/12Dividends PaidCommon Stock-AbernethyGoodwill (Click to select)Depreciation ExpenseLong-Term LiabilitiesEquipmentInvestment in AbernethyGoodwillDividends PaidRetained Earnings, 1/1/12Common Stock-Abernethy (Click to select)Depreciation ExpenseLong-Term LiabilitiesCommon Stock-AbernethyInvestment in AbernethyEquipmentGoodwillRetained Earnings, 1/1/12Dividends Paid (Click to select)Interest ExpenseInvestment in AbernethyDepreciation ExpenseRetained Earnings, 1/1/12Long-Term LiabilitiesDividend IncomeDividends PaidGoodwill Entry I (Click to select)Dividend IncomeGoodwillInvestment in AbernethyLong-Term LiabilitiesEquipmentDividends PaidRetained Earnings, 1/1/12Additional Paid-In Capital (Click to select)Dividends PaidLong-Term LiabilitiesRetained Earnings, 1/1/12Investment in AbernethyGoodwillEquipmentAdditional Paid-In CapitalDividend Income Entry E (Click to select)Depreciation ExpenseLong-Term LiabilitiesAdditional Paid-In CapitalInvestment in AbernethyInterest ExpenseRetained Earnings, 1/1/12EquipmentGoodwill (Click to select)GoodwillAdditional Paid-In CapitalInvestment in AbernethyInterest ExpenseEquipmentRetained Earnings, 1/1/12Long-Term LiabilitiesDepreciation Expense (Click to select)GoodwillLong-Term LiabilitiesDepreciation ExpenseDividends PaidInterest ExpenseDividend IncomeInvestment in AbernethyEquipment (Click to select)Long-Term LiabilitiesGoodwillEquipmentDividend IncomeDividends PaidInvestment in AbernethyInterest ExpenseDepreciation Expense Dec. 31, 2013 Entry *C (Click to select)Interest ExpenseGoodwillEquipmentDividend IncomeCommon Stock-AbernethyRetained Earnings, 1/1/13Dividends PaidInvestment in Abernethy (Click to select)Investment in AbernethyLong-Term LiabilitiesRetained Earnings, 1/1/13Interest ExpenseDividend IncomeGoodwillCommon Stock-AbernethyDividends Paid Entry S (Click to select)Depreciation ExpenseEquipmentRetained Earnings, 1/1/13Common Stock-AbernethyGoodwillLong-Term LiabilitiesAdditional Paid-In CapitalInvestment in Abernethy (Click to select)Common Stock-AbernethyInvestment in AbernethyAdditional Paid-In CapitalEquipmentDepreciation ExpenseGoodwillLong-Term LiabilitiesRetained Earnings, 1/1/13 (Click to select)EquipmentGoodwillCommon Stock-AbernethyInvestment in AbernethyAdditional Paid-In CapitalRetained Earnings, 1/1/13Long-Term LiabilitiesDepreciation Expense (Click to select)Investment in AbernethyDepreciation ExpenseCommon Stock-AbernethyDividend IncomeRetained Earnings, 1/1/13Additional Paid-In CapitalDividends PaidInterest Expense Entry A (Click to select)Common Stock-AbernethyDepreciation ExpenseEquipmentInvestment in AbernethyAdditional Paid-In CapitalGoodwillLong-Term LiabilitiesRetained Earnings, 1/1/13 (Click to select)GoodwillInvestment in AbernethyCommon Stock-AbernethyRetained Earnings, 1/1/13Additional Paid-In CapitalLong-Term LiabilitiesEquipmentDepreciation Expense (Click to select)Investment in AbernethyAdditional Paid-In CapitalDepreciation ExpenseEquipmentRetained Earnings, 1/1/13Long-Term LiabilitiesCommon Stock-AbernethyGoodwill (Click to select)Investment in AbernethyGoodwillDividends PaidEquipmentLong-Term LiabilitiesDividend IncomeInterest ExpenseRetained Earnings, 1/1/13 Entry I (Click to select)GoodwillDividends PaidLong-Term LiabilitiesEquipmentAdditional Paid-In CapitalDividend IncomeRetained Earnings, 1/1/13Investment in Abernethy (Click to select)Long-Term LiabilitiesEquipmentInterest ExpenseGoodwillDividends PaidAdditional Paid-In CapitalRetained Earnings, 1/1/13Dividend Income Entry E (Click to select)Interest ExpenseEquipmentDepreciation ExpenseCommon Stock-AbernethyLong-Term LiabilitiesDividends PaidInvestment in AbernethyDividend Income (Click to select)Long-Term LiabilitiesDividends PaidCommon Stock-AbernethyInvestment in AbernethyInterest ExpenseDepreciation ExpenseDividend IncomeEquipment (Click to select)Additional Paid-In CapitalRetained Earnings, 1/1/13EquipmentInvestment in AbernethyInterest ExpenseGoodwillDepreciation ExpenseLong-Term Liabilities (Click to select)GoodwillEquipmentAdditional Paid-In CapitalDepreciation ExpenseLong-Term LiabilitiesRetained Earnings, 1/1/13Interest ExpenseInvestment in Abernethy check my workreferencesebook & resources eBook: Subsequent Consolidations-Investment Recorded Using Initial Value or Partial Equity Method Worksheet Difficulty: 3 Hard Problem 3-21 [LO4b] Learning Objective: 03-04b Prepare consolidated financial statements subsequent to acquisition when the parent has applied the initial value method in its internal records.

eBook: Subsequent Consolidations-Investment Recorded Using Initial Value or Partial Equity Method Worksheet Difficulty: 3 Hard Problem 3-21 [LO4b] Learning Objective: 03-04b Prepare consolidated financial statements subsequent to acquisition when the parent has applied the initial value method in its internal records.

Explanation / Answer

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

$

59,300

Accounts receivable

$

44,300

Additional paid-in capital

50,000

Buildings (net) (4-year life)

137,000

Cash and short-term investments

73,750

Common stock

250,000

Equipment (net) (5-year life)

262,500

Inventory

126,500

Land

100,500

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

176,000

Retained earnings, 1/1/12

227,850

Supplies

18,600

Totals

$

763,150

$

763,150

During 2012, Abernethy reported income of $96,000 while paying dividends of $12,000. During 2013, Abernethy reported income of $141,000 while paying dividends of $45,000.

Assume that Chapman Company acquired Abernethy’s common stock by paying $670,850 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, 2012, and December 31, 2013. (Leave no cells blank. If no entry is required, select "No Journal Entry Required" in the account field and zero (0) in the amount field.)

Date

General Journal

Debit

Credit

Dec. 31, 2012

Entry S

Common Stock-Abernethy

Additional Paid-In Capital

Retained Earnings-Abernethy, 1/1/12

Investment in Abernethy

702,900

Entry A

Goodwill

n/r

Investment in Abernethy

n/r

Entry I

Equity in Earnings of Subsidiary

90,000

Investment in Abernethy

90,000

Entry D

Investment in Abernethy

16,000

Dividends Paid

16,000

Entry E

No Journal Entry Required

n/r

n/r

n/r

Dec. 31, 2013

Entry *C

No Journal Entry Required

n/r

n/r

n/r

Entry S

Common Stock-Abernethy

Additional Paid-In Capital

Retained Earnings-Abernethy, 1/1/13

Investment in Abernethy

n/r

Entry A

Goodwill

n/r

Investment in Abernethy

n/r

Entry I

Equity in Earnings of Subsidiary

n/r

Investment in Abernethy

n/r

Entry D

Investment in Abernethy

16,000

Dividends Paid

16,000

Entry E

No Journal Entry Required

n/r

n/r

n/r

On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $57,732. Calvin Co. has one recorded asset, a specialized production machine with a book value of $10,300 and no liabilities. The fair value of the machine is $82,300, and the remaining useful life is estimated to be 10 years. Any remaining excess fair value is attributable to an unrecorded process trade secret with an estimated future life of 4 years. Calvin’s total acquisition date fair value is $96,220.

At the end of the year, Calvin reports the following in its financial statements:

Revenues

$

60,750

Machine

$

9,270

Common stock

$

10,000

Expenses

22,350

Other assets

34,130

Retained earnings

33,400

Net income

$

38,400

Total assets

$

43,400

Total equity

$

43,400

Dividends paid

$

5,000

Determine the amounts that Beckman should report in its year-end consolidated financial statements for noncontrolling interest in subsidiary income, total noncontrolling interest, Calvin’s machine (net of accumulated depreciation), and the process trade secret. (Input all amounts as positive values.)

Amounts

Noncontrolling interest in subsidiary income

$ 15,360

Total noncontrolling interest

$ n/r

Calvin's machine (net accumulated depreciation)

$ 74,070

Process trade secret

$ 23,100

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

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