Homework 3

Topics: Balance sheet, Generally Accepted Accounting Principles, Asset Pages: 117 (5294 words) Published: June 30, 2014
10/13/12

Assignment Print View

Score: 45.94

1.

out of 50 points (91.88%)

aw ard:

10 out of
10.00 points
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2011. As of that date, Abernethy has the following trial balance:
Debit
Accounts payable
Accounts receivable
Additional paid-in capital
Buildings (net) (4-year life)
Cash and short-term investments
Common stock
Equipment (net) (5-year life)
Inventory
Land
Long-term liabilities (mature 12/31/14)
Retained earnings, 1/1/11
Supplies
Totals

$
$

Credit
50,000

40,000
50,000
120,000
60,000
250,000
200,000
90,000
80,000
150,000
100,000
10,000

$ 600,000

$

600,000

During 2011, Abernethy reported income of $80,000 while paying dividends of $10,000. During 2012, Abernethy reported income of $110,000 while paying dividends of $30,000. Assume that Chapman Company acquired Abernethy’s common stock for $490,000 in cash. As of January 1, 2011, Abernethy’s land had a fair value of $90,000, its buildings were valued at $160,000, and its equipment was appraised at $180,000. Chapman uses the equity method for this investment. Required:

Prepare consolidation worksheet adjustments for December 31, 2011, and December 31, 2012. (Omit the "$" sign in your response.)
Date
Dec. 31, 2011
(1a)

General Journal
Common stock-Abernethy
Additional paid in capital
Retained earnings

Debit

Credit

250,000
50,000
100,000

Investment in Abernethy
(1b)

400,000

Land

10,000

Buildings

40,000

Equipment
Investment in Abernethy
(1c)

20,000
30,000

Goodwill

60,000

Investment in Abernethy
(2a1)

Equity in subsidiary earnings

60,000
74,000

Investment in Abernethy
(2a2)

No entry required

74,000
0

No entry required
(2b)

Investment in Abernathy

0
10,000

Dividends paid
(3a1)

Depreciation expense

10000
10,000

Building
(3a2)

Equipment

10,000
4,000

Depreciation expense
(3b)

No entry required
No entry required

ezto.mhecloud.mcgraw-hill.com/hm.tpx?todo=printview

4,000
0
0

1/18

10/13/12

Assignment Print View

No entry required
Dec. 31, 2012
(1a)

Common stock-Abernathy

0

250,000

Additional paid-in capital

50,000

Retained earnings

170,000

Investment in Abernathy
(1b)

470,000

Land

10,000

Building

30,000

Equipment

-16,000

Investment in Abernathy
(1c)

24,000

Goodwill

60,000

Investment in Abernathy
(2a1)

60,000

Equity in subsidiary earnings

104,000

Investment in Abernathy
(2a2)

104,000

No entry required

0

No entry required
(2b)

0

Investment in Abernathy

30,000

Dividends paid
(3a1)

30,000

Depreciation expense

10,000

Building

(3a2)

10,000
4,000

Equipment
Depreciation expense

(3b)

4,000

No entry required

0

No entry required

0

Learning Objective: 03-04a Prepare consolidated
financial statements subsequent to acquisition when
the parent has applied in its internal records: The
equity method.

Worksheet

Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2011. As of that date, Abernethy has the following trial balance:
Debit
Accounts payable
Accounts receivable
Additional paid-in capital
Buildings (net) (4-year life)
Cash and short-term investments
Common stock
Equipment (net) (5-year life)
Inventory
Land
Long-term liabilities (mature 12/31/14)
Retained earnings, 1/1/11
Supplies
Totals

$
$

Credit
50,000

40,000
50,000
120,000
60,000
250,000
200,000
90,000
80,000
150,000
100,000
10,000

$ 600,000

$

600,000

During 2011, Abernethy reported income of $80,000 while paying dividends of $10,000. During 2012, Abernethy reported income of $110,000 while paying dividends of $30,000. Assume that Chapman Company acquired Abernethy’s common stock for $490,000 in cash. As of January 1, 2011, Abernethy’s land...
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