Reference no: EM132781351

Problem - Chapman Company obtains 100 percent of Abernethy Company's stock on January 1, 2017. As of that date, Abernethy has the following trial balance:

	Debit	Credit
Accounts payable		$52,400
Accounts receivable	$48,600
Additional paid-in capital		50,000
Buildings (net) (4-year remaining life)	179,000
Cash and short-term investments	61,250
Common stock		250,000
Equipment (net) (5-year remaining life)	260,000
Inventory	121,500
Land	105,000
Long-term liabilities (mature 12/31/20)		174,500
Retained earnings, 1/1/17		264,650
Supplies	16,200
Totals	$791,550	$791,550

During 2017, Abernethy reported net income of $86.000 while declaring and paying dividends of $11,000. During 2018, Abernethy reported net income of $124,500 while declaring and paying dividends of $47.000.

Assume that Chapman Company acquired Abernethy's common stock for $675160 in cash. Assume that the equipment and long-term liabilities had fair values of $284,350 and $142,140, respectively, on the acquisition date. Chapman uses the initial value method to account for its investment.

Required - Prepare consolidation worksheet entries for December 31, 2017, and December 31, 2018.

1) Prepare entry S to eliminate stockholders' equity accounts of subsidiary.

2) Prepare entry A to recognize allocations determined above in connection with acquisition-date fair values.

3) Prepare entry I to eliminate intra-entity dividend declarations recorded by parent as income.

4) Prepare entry E to recognize 2017 amortization expense.

5) Prepare entry *C to convert parent company figures to equity method by recognizing subsidiary's increase in book value for prior year [$86,000 net income less $11,000 dividend declaration] and excess amortizations for that period [$12,960].

6) Prepare entry S to eliminate beginning of year stockholders' equity accounts of subsidiary. The retained earnings balance has been adjusted for 2017 net income and dividends.

7) Prepare entry A to recognize allocations relating to investment-balances shown here are as of the beginning of the current year [original allocation less excess amortizations for the prior period].

8) Prepare entry I to eliminate intra-entity dividend declarations recorded by parent as income.

9) Prepare entry E to recognize 2018 amortization expense.