Question
Chapman Company obtains 100 percent of Abernethy Companys stock on January 1, 2020. As of that date, Abernethy has the following trial balance: Debit Credit
Chapman Company obtains 100 percent of Abernethy Companys stock on January 1, 2020. As of that date, Abernethy has the following trial balance:
Debit | Credit | ||||
Accounts payable | $ | 56,400 | |||
Accounts receivable | $ | 43,900 | |||
Additional paid-in capital | 50,000 | ||||
Buildings (net) (4-year remaining life) | 217,000 | ||||
Cash and short-term investments | 76,750 | ||||
Common stock | 250,000 | ||||
Equipment (net) (5-year remaining life) | 367,500 | ||||
Inventory | 96,500 | ||||
Land | 122,000 | ||||
Long-term liabilities (mature 12/31/23) | 182,500 | ||||
Retained earnings, 1/1/20 | 396,250 | ||||
Supplies | 11,500 | ||||
Totals | $ | 935,150 | $ | 935,150 | |
During 2020, Abernethy reported net income of $103,500 while declaring and paying dividends of $13,000. During 2021, Abernethy reported net income of $145,250 while declaring and paying dividends of $47,000. Assume that Chapman Company acquired Abernethys common stock for $793,300 in cash. As of January 1, 2020, Abernethys land had a fair value of $134,000, its buildings were valued at $267,800, and its equipment was appraised at $336,250. Chapman uses the equity method for this investment.
Prepare consolidation worksheet entries for December 31, 2020, and December 31, 2021
1-Prepare entry *C to convert parent's beginning retained earnings to full accrual basis.
2-Prepare entry S to eliminate stockholders' equity accounts of subsidiary.
3-Prepare entry A to recognize allocations attributed to fair value of specific accounts at acquisition date with residual fair value recognized as goodwill.
4-Prepare entry I to eliminate the income accrual for 2020 less the amortization recorded by the parent using the equity method.
5-Prepare entry D to eliminate intra-entity dividend transfers.
6-Prepare entry E to recognize current year amortization expense.
7-Prepare entry *C to convert parent's beginning retained earnings to full accrual basis.
8-Prepare entry S to eliminate stockholders' equity accounts of subsidiary for 2021.
9-Prepare entry A to recognize allocations attributed to specific accounts at acquisition date for 2021.
10-Prepare entry I to eliminate the income accrual for 2021 less the amortization recorded by the parent using the equity method.
11-Prepare entry D to eliminate intra-entity dividend transfers.
12- Prepare entry E to recognize current year amortization expense.
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