Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that date, Abernethy has the following trial balance: Debit Credit Accounts payable $ 54,100 Accounts receivable $ 48,500 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 130,000 Cash and short-term investments 66,000 Common stock 250,000 Equipment (net) (5-year remaining life) 437,500 Inventory 109,000 Land 89,000 Long-term liabilities (mature 12/31/23) 178,500 Retained earnings, 1/1/20 358,800 Supplies 11,400 Totals $ 891,400 $ 891,400 During 2020, Abernethy reported net income of $126,000 while declaring and paying dividends of $16,000. During 2021, Abernethy reported net income of $174,000 while declaring and paying dividends of $49,000. Assume that Chapman Company acquired Abernethy’s common stock for $773,550 in cash. As of January 1, 2020, Abernethy’s land had a fair value of $104,200, its buildings were valued at $208,800, and its equipment was appraised at $396,500. Chapman uses the equity method for this investment. Prepare consolidation worksheet entries for December 31, 2020, and December 31, 2021

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that date, Abernethy has the following trial balance:

	Debit		Credit
Accounts payable				$	54,100
Accounts receivable	$	48,500
Additional paid-in capital					50,000
Buildings (net) (4-year remaining life)		130,000
Cash and short-term investments		66,000
Common stock					250,000
Equipment (net) (5-year remaining life)		437,500
Inventory		109,000
Land		89,000
Long-term liabilities (mature 12/31/23)					178,500
Retained earnings, 1/1/20					358,800
Supplies		11,400
Totals	$	891,400		$	891,400

During 2020, Abernethy reported net income of $126,000 while declaring and paying dividends of $16,000. During 2021, Abernethy reported net income of $174,000 while declaring and paying dividends of $49,000.

Assume that Chapman Company acquired Abernethy’s common stock for $773,550 in cash. As of January 1, 2020, Abernethy’s land had a fair value of $104,200, its buildings were valued at $208,800, and its equipment was appraised at $396,500. Chapman uses the equity method for this investment.

Prepare consolidation worksheet entries for December 31, 2020, and December 31, 2021

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.
Prepare entry I to eliminate the income accrual for 2020
less the amortization recorded by the parent using the
equity method.

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.
Prepare entry A to recognize allocations attributed to
specific accounts at acquisition date for 2021.
9,

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