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 | $ | 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 12/31/20) | 182,500 | ||||
Retained earnings, 1/1/17 | 396,250 | ||||
Supplies | 11,500 | ||||
Totals | $ | 935,150 | $ | 935,150 | |
During 2017, Abernethy reported net income of $103,500 while declaring and paying dividends of $13,000. During 2018, Abernethy reported net income of $145,250 while declaring and paying dividends of $47,000.
Assume that Chapman Company acquired Abernethys common stock by paying $906,250 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, 2017, and December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare entry S to eliminate stockholders' equity accounts of subsidiary.
2
Prepare entry A to recognize goodwill portion of the original acquisition fair value.
3
Prepare 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.
6
Prepare entry *C.
7
Prepare entry S to eliminate beginning of year stockholders' equity accounts of subsidiarythe retained earnings balance has been adjusted for 2017 income and dividends.
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.
11
Prepare entry E.
Note : = journal entry has been entered
Consolidation Worksheet Entries
.....
Prepare entry S to eliminate stockholders' equity accounts of subsidiary.
Note: Enter debits before credits.
Foxx Corporation acquired all of Greenburg Companys outstanding stock on January 1, 2016, for $781,000 cash. Greenburgs accounting records showed net assets on that date of $586,000, although equipment with a 10-year life was undervalued on the records by $145,000. Any recognized goodwill is considered to have an indefinite life.
Greenburg reports net income in 2016 of $95,500 and $128,000 in 2017. The subsidiary declared dividends of $20,000 in each of these two years.
Account balances for the year ending December 31, 2018, follow. Credit balances are indicated by parentheses.
Foxx | Greenburg | ||||||
Revenues | $ | (1,180,000 | ) | $ | (684,000 | ) | |
Cost of goods sold | 147,500 | 171,000 | |||||
Depreciation expense | 306,000 | 368,000 | |||||
Investment income | (20,000 | ) | 0 | ||||
Net income | $ | (746,500 | ) | $ | (145,000 | ) | |
Retained earnings, 1/1/18 | $ | (1,290,000 | ) | $ | (391,000 | ) | |
Net income | (746,500 | ) | (145,000 | ) | |||
Dividends declared | 120,000 | 20,000 | |||||
Retained earnings, 12/31/18 | $ | (1,916,500 | ) | $ | (516,000 | ) | |
Current assets | $ | 336,000 | $ | 161,000 | |||
Investment in subsidiary | 781,000 | 0 | |||||
Equipment (net) | 908,000 | 750,000 | |||||
Buildings (net) | 862,000 | 512,000 | |||||
Land | 722,000 | 125,000 | |||||
Total assets | $ | 3,609,000 | $ | 1,548,000 | |||
Liabilities | $ | (792,500 | ) | $ | (732,000 | ) | |
Common stock | (900,000 | ) | (300,000 | ) | |||
Retained earnings | (1,916,500 | ) | (516,000 | ) | |||
Total liabilities and equity | $ | (3,609,000 | ) | $ | (1,548,000 | ) | |
Determine the December 31, 2018, consolidated balance for each of the following accounts:
Depreciation Expense | Buildings |
Dividends Declared | Goodwill |
Revenues | Common Stock |
Equipment | |
How does the parent's choice of an accounting method for its investment affect the balances computed in requirement (a)?
Which method of accounting for this subsidiary is the parent actually using for internal reporting purposes?
Determine parent's investment income for 2018 under partial equity method and equity method.
What would be Foxxs balance for retained earnings as of January 1, 2018, if each of the following methods had been in use?
Initial value method.
Partial equity method.
Equity method.
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