Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2

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 $664,740 in cash. Assume that the equipment and long-term liabilities had fair values of $349,250 and $151,060, 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.)

1.  Prepare entry S to eliminate stockholders' equity accounts of subsidiary.

2. Prepare entry A to recognize allocations determined above in connection with acquisition-date fair values.

3. Prepare entry I to eliminate intra-entity dividend declarations recorded by parent as income.

4. Prepare entry E to recognize 2017 amortization expense.

5. Prepare entry *C to convert parent company figures to equity method by recognizing subsidiary's increase in book value for prior year [$80,000 net income less $10,000 dividend declaration] and excess amortizations for that period [$11,500].

6. Prepare entry S to eliminate beginning of year stockholders' equity accounts of subsidiary. The retained earnings balance has been adjusted for 2017 net income and dividends.

7. Prepare entry A 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].

8. Prepare entry I to eliminate intra-entity dividend declarations recorded by parent as income.

9. Prepare entry E to recognize 2018 amortization expense.

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 $ 793,550

Explanation / Answer

Solution:

1.

Common Stock-Abernethy 250,000

Additional Paid in Capital 50,000

Retained Earnings, 1/1/12 252,350

Investment in Abernethy 552,350

2.

Equipment 21,750

Long-term liabilities 32,440

Goodwill 58,200

Investment in Abernethy 112,390

3. Entry I

Dividend Income ................. 13,000

Dividends paid ......................... 13,000

4. Entry E

Depreciation expense 4,350

Interest expense 10,813

Equipment 4,350

Long term liabilities 10,813   

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.