Question
Chapman Company obtains 100 percent of Abernethy Companys stock on January 1, 2017. As of that date, Abernethy has the following trial balance: Debit Credit
Chapman Company obtains 100 percent of Abernethy Companys stock on January 1, 2017. As of that date, Abernethy has the following trial balance:
Debit | Credit | ||||
Accounts payable | $ | 50,300 | |||
Accounts receivable | $ | 47,500 | |||
Additional paid-in capital | 50,000 | ||||
Buildings (net) (4-year remaining life) | 201,000 | ||||
Cash and short-term investments | 61,750 | ||||
Common stock | 250,000 | ||||
Equipment (net) (5-year remaining life) | 447,500 | ||||
Inventory | 127,500 | ||||
Land | 124,000 | ||||
Long-term liabilities (mature 12/31/20) | 162,000 | ||||
Retained earnings, 1/1/17 | 514,850 | ||||
Supplies | 17,900 | ||||
Totals | $ | 1,027,150 | $ | 1,027,150 | |
During 2017, Abernethy reported net income of $97,000 while declaring and paying dividends of $12,000. During 2018, Abernethy reported net income of $141,250 while declaring and paying dividends of $48,000.
Assume that Chapman Company acquired Abernethys common stock for $919,830 in cash. Assume that the equipment and long-term liabilities had fair values of $471,000 and $131,120, 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 [$97,000 net income less $12,000 dividend declaration] and excess amortizations for that period [$12,420].
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