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 for $699,850 in cash. As of January 1, 2020, Abernethys land had a fair value of $141,400, its buildings were valued at $217,400, and its equipment was appraised at $217,500. Chapman uses the equity method for this investment.
Prepare 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.)
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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