Chapman Company obtalns 100 percent of Abernethy Company's stock on January 1, 2020. As of that date, Abernethy has the following trial balance: Debit Credit $ 50,800 Accounts payable Accounts receivable Additional paid-in capital Buildings (net) (4-year remaining life) Cash and short-term investments Connon stock $ 48,200 5e, 000 161,000 81,750 250,000 Equipment (net) (5-year remaining life) Inventory Land 242,500 135,500 129, 5e0 Long-term 1iabilities (nature 12/31/23) Retained earnings, 1/1/20 Supplies 167,000 50ב ,297 16,700 $815,150 Totals $ 815,150 During 2020, Abernethy reported net income of $90,000 while declaring and paying dividends of $11,000. During 2021, Abernethy reported net income of $134,750 while declaring and paying dividends of $34,00. Assume that Chapman Company acquired Abernethy's common stock for $699,660 In cash. Assume that the equipment and long- term liabilities had falr values of $264,550 and $136,840, respectively, on the acquisition date. Chapman uses the initial value method to account for Its 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.)
Chapman Company obtalns 100 percent of Abernethy Company's stock on January 1, 2020. As of that date, Abernethy has the following trial balance: Debit Credit $ 50,800 Accounts payable Accounts receivable Additional paid-in capital Buildings (net) (4-year remaining life) Cash and short-term investments Connon stock $ 48,200 5e, 000 161,000 81,750 250,000 Equipment (net) (5-year remaining life) Inventory Land 242,500 135,500 129, 5e0 Long-term 1iabilities (nature 12/31/23) Retained earnings, 1/1/20 Supplies 167,000 50ב ,297 16,700 $815,150 Totals $ 815,150 During 2020, Abernethy reported net income of $90,000 while declaring and paying dividends of $11,000. During 2021, Abernethy reported net income of $134,750 while declaring and paying dividends of $34,00. Assume that Chapman Company acquired Abernethy's common stock for $699,660 In cash. Assume that the equipment and long- term liabilities had falr values of $264,550 and $136,840, respectively, on the acquisition date. Chapman uses the initial value method to account for Its 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.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**Chapman Company obtains 100 percent of Abernethy Company's stock on January 1, 2020. As of that date, Abernethy has the following trial balance:**
| Account | Debit | Credit |
|---------------------------------------------------|---------|-----------|
| Accounts payable | | $50,800 |
| Accounts receivable | $48,200 | |
| Additional paid-in capital | | $50,000 |
| Buildings (net) (4-year remaining life) | $161,800| |
| Cash and short-term investments | $81,750 | |
| Common stock | | $250,000 |
| Equipment (net) (5-year remaining life) | $242,500| |
| Inventory | $135,500| |
| Land | $129,560| |
| Long-term liabilities (mature 12/31/23) | | $167,000 |
| Retained earnings, 1/1/20 | | $297,350 |
| Supplies | $16,780 | |
| Totals | $815,150| $815,150 |
**During 2020**, Abernethy reported net income of $90,000 while declaring and paying dividends of $11,000. **During 2021**, Abernethy reported net income of $134,750 while declaring and paying dividends of $34,000.
**Assumptions:**
- Chapman Company acquired Abernethy’s common stock for $699,660 in cash.
- Assume the equipment and long-term liabilities had fair values of $264,550 and $136,840, respectively, on the acquisition date.
- Chapman uses the initial value method to account for its investment.
**Instructions:**
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.)*
Transcribed Image Text:### Accounting Procedures for Subsidiary Equity Management
1. **Entry S**: Eliminate the stockholders' equity accounts of the subsidiary.
2. **Entry A**: Recognize allocations related to acquisition-date fair values.
3. **Entry I**: Eliminate intra-entity dividends.
4. **Entry E**: Recognize the amortization expense for the year 2020.
5. **Entry *C**: Convert the parent company figures to the equity method.
6. **Entry S (2021)**: Eliminate the stockholders' equity accounts of the subsidiary for 2021.
7. **Entry A (2021)**: Recognize allocations attributed to specific accounts as of the acquisition date for 2021.
8. **Entry A**: Recognize additional allocations connected with acquisition-date fair values.
9. **Entry E (2021)**: Recognize the amortization expense for the year 2021.
These entries are vital for ensuring accurate representation of financial data, eliminating redundancies, and aligning accounting measures post-acquisition.
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