Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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].

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Economic Development Finance

Authors: Karl F Seidman

1st Edition

0761927093, 9780761927099

More Books

Students also viewed these Accounting questions

Question

Does pure liquid water have any buffering ability? Explain.

Answered: 1 week ago

Question

What is a goal? (p. 86)

Answered: 1 week ago