Answered Essay: ny’s stock on January 1, 2014. As of that date, Abernethy has the following trial balance:

Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2014. As of that date, Abernethy has the following trial balance:
Debit Credit
  Accounts payable $ 57,300
  Accounts receivable $ 42,200
  Additional paid-in capital 50,000
  Buildings (net) (4-year life) 214,000
  Cash and short-term investments 82,250
  Common stock 250,000
  Equipment (net) (5-year life) 375,000
  Inventory 90,500
  Land 117,000
  Long-term liabilities (mature 12/31/17) 170,000
  Retained earnings, 1/1/14 409,650
  Supplies 16,000
  Totals $ 936,950 $ 936,950
     During 2014, Abernethy reported net income of $117,500 while declaring and paying dividends of $15,000. During 2015, Abernethy reported net income of $171,250 while declaring and paying dividends of $55,000.
Assume that Chapman Company acquired Abernethy’s common stock for $860,500 in cash. As of January 1, 2014, Abernethy’s land had a fair value of $132,000, its buildings were valued at $287,600, and its equipment was appraised at $352,500. Chapman uses the equity method for this investment.
Prepare consolidation worksheet entries for December 31, 2014, and December 31, 2015. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)

There should be ten entries and I solved the first few:

Step 1.
Common Stock     250,000.00
Additional Paid in capital        50,000.00
Retained earnings account     409,650.00
Stockholders Equity     709,650.00
Purchase Consideration     860,500.00
Less: Fvof net assets (709,650.00)
Excess of purchase consideration over FV     150,850.00
Overvalued Land ( 132000-90500)     (15,000.00)
Undervalued Equipment (352500-375000)        22,500.00
Overvalued Buildings (287600-214000)     (73,600.00)
Remaining Attributed to goodwill        84,750.00
Overvalued Land ( 132000-90500)     (15,000.00)
Undervalued Equipment (352500-375000)        22,500.00
Overvalued Buildings (287600-214000)     (73,600.00)
Total Amount attributed to assets        18,650.00
Total excess of purchase considerations over Fari value     150,850.00
Less:Attributed to assets     (18,650.00)
Attributed to goodwill     169,500.00
Step 2.
Overvlaued Land:                       –
Undervalued Equipment (22,500 useful life of 5 years)        (4,500.00)
Overvalued Building (73600 uselful life 4 years)        18,400.00
Total Annual excess amortization        13,900.00
Step 3.
Entry S For elininating thetotal of stockholders account of subsidiary company:
Common Stock (abernathy)     250,000.00
Additional Paid in capital        50,000.00
Retained earnings account (1/1/14)     409,650.00
Investment in A. Co.    709,650.00
Step 4
The entry A will be passed to attribute the allocation of fair value to specific accounts at acquisition date.
Land        15,000.00
Building        73,600.00
Goodwill        84,750.00
Equipment      22,500.00
Investment in A. Co.        84,750.00    150,850.00
    173,350.00    173,350.00
Step 5.
The entry I is passed by deiting equity in earnings of subsidiary company and eliminating the income accrual of $117,500 nd 13900 of amortization amount, and crediting the investment in A company
Equity in earnings of subsidiary     103,600.00
Investment in A. Co.    103,600.00

Expert Answer

 

Date General Journal Debit Credit
Dec 31’2014
Entry S Common Stock-Abernethy $250,000.00
Additional paid in Capital $50,000.00
Retained Earnings $409,650.00
      Investment in Abernethy $709,650.00
EntryA Land $15,000.00
Building $73,600.00
Goodwill $84,750.00
      Equipment $22,500.00
      Investment in Abernethy $150,850.00
Entry I Equity in subsidiary Earnings $103,600.00 (117500-13900)
      Investment in Abernethy $103,600.00
Entry D Investment in Abernethy $15,000.00
         Dividend Paid $15,000.00
Entry E Depreciation Expense $13,900.00
Equipment $4,500.00
    Building $18,400.00
Dec 31’2015
Entry S Common Stock-Abernethy $250,000.00
Additional paid in Capital $50,000.00
Retained Earnings $512,150.00
      Investment in Abernethy $812,150.00
EntryA Land $15,000.00
Building $55,200.00
Goodwill $84,750.00
      Equipment $18,000.00
      Investment in Abernethy $136,950.00
Entry I Equity in subsidiary Earnings $157,350.00 (171250-13900)
      Investment in Abernethy $157,350.00
Entry D Investment in Abernethy $55,000.00
         Dividend Paid $55,000.00
Entry E Depreciation Expense $13,900.00
Equipment $4,500.00
    Building $18,400.00
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