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 | $ | 59,500 | |||
Accounts receivable | $ | 46,600 | |||
Additional paid-in capital | 50,000 | ||||
Buildings (net) (4-year remaining life) | 145,000 | ||||
Cash and short-term investments | 84,250 | ||||
Common stock | 250,000 | ||||
Equipment (net) (5-year remaining life) | 257,500 | ||||
Inventory | 106,000 | ||||
Land | 129,000 | ||||
Long-term liabilities (mature 12/31/23) | 151,000 | ||||
Retained earnings, 1/1/20 | 273,050 | ||||
Supplies | 15,200 | ||||
Totals | $ | 783,550 | $ | 783,550 | |
During 2020, Abernethy reported net income of $98,500 while declaring and paying dividends of $12,000. During 2021, Abernethy reported net income of $132,250 while declaring and paying dividends of $48,000.
Assume that Chapman Company acquired Abernethys common stock by paying $705,050 in cash. All of Abernethys 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, 2020, and December 31, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1Prepare entry S to eliminate stockholders' equity accounts of subsidiary.
2Prepare entry A to recognize goodwill portion of the original acquisition fair value.
3Prepare entry I to eliminate intra-entity income accrual for the current year based on the parent's usage of the partial equity method.
4 Prepare entry D to eliminate intra-entity dividend transfers.
5 Prepare entry E to recognize 2020 amortization expense.
6 Prepare entry *C to convert parent company figures to equity method.
7 Prepare entry S to eliminate stockholders' equity accounts of subsidiary for 2021.
8 Prepare entry A to recognize original goodwill balance.
9 Prepare entry I to eliminate Intra-entity Income accrual for the current year
10 Prepare entry D to eliminate Intra-entity dividend transfers.
11Prepare entry E to recognize 2021 amortization expense.
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