Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2014. As of that date, Abernethy has the following trial balance:      

 

During 2014, Abernethy reported net income of $120,000 while declaring and paying dividends of $15,000. During 2015, Abernethy reported net income of $170,000 while declaring and paying dividends of $48,000.               

Assume that Chapman Company acquired Abernethy’s common stock for $500,000 in cash. Assume that the equipment and long-term liabilities had fair values of $220,000 and $120,000, respectively, on the acquisition date. Chapman uses the initial value method to account for its investment. Prepare consolidation worksheet entries for December 31, 2014, and December 31, 2015.

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Debit Credit $ 50,000 Accounts payable. Accounts receivable.. Additional paid-in capital. Buildings (net) (4-year remaining life). Cash and short-term investments.. $ 40,000 50,000 120,000 60,000 Common stock ..... Equipment (net) (5-year remaining life) Inventory.... Land 250,000 200,000 90,000 80,000 Long-term liabilities (mature 12/31/17). Retained earnings, 1/1/14 Supplies... Totals... 150,000 100,000 .... 10,000 $600,000 $600,000 Debit Credit $ 50,000 Accounts payable. Accounts receivable.. Additional paid-in capital. Buildings (net) (4-year remaining life). Cash and short-term investments.. $ 40,000 50,000 120,000 60,000 Common stock ..... Equipment (net) (5-year remaining life) Inventory.... Land 250,000 200,000 90,000 80,000 Long-term liabilities (mature 12/31/17). Retained earnings, 1/1/14 Supplies... Totals... 150,000 100,000 .... 10,000 $600,000 $600,000

Answer rating: 100% (QA)

To prepare consolidation entries the total investment in Company A needs to be calculated The investment will be the difference in the acquisition price and the shareholders equity in the company Calc... View the full answer