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On July 1, 2013, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $749,000 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $321,000 both before and after Truman’s acquisition. In reviewing its acquisition, Truman assigned a $112,500 fair value to a patent recently developed by Atlanta, even though it was not recorded within the financial records of the subsidiary. This patent is anticipated to have a remaining life of five years. The following financial information is available for these two companies for 2013. In addition, the subsidiary’s income was earned uniformly throughout the year. Subsidiary dividend payments were made quarterly. Truman Atlanta Revenues$(742,975)$(468,000)Operating expenses476,000314,000Income of subsidiary(46,025)Net income$(313,000)$(154,000) Retained earnings, 1/1/13$(906,000)$(510,000)Net income (above)(313,000)(154,000)Dividends paid160,00080,000Retained earnings, 12/31/13$(1,059,000)$(584,000) Current assets$504,975$404,000Investment in Atlanta767,025Land465,000241,000Buildings720,000646,000Total assets$2,457,000$1,291,000 Liabilities$(898,000)$(387,000)Common stock(95,000)(300,000)Additional paid-in capital(405,000)(20,000)Retained earnings, 12/31/13(1,059,000)(584,000)Total liabilities and stockholders' equity$(2,457,000This document was truncated here because it was created in the Evaluation Mode.

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David · Accepted Answer

Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2012. As of that date, Abernethy has the following trial balance:
	
	Debit
	
	Credit
	Accounts payable
	
	
	
	$
	55,300 
	Accounts receivable
	$
	45,800 
	
	
	
	Additional paid-in capital
	
	
	
	
	50,000 
	Buildings (net) (4-year life)
	
	197,000
	
	
	
	Cash and short-term investments
	
	81,500 
	
	
	
	Common stock
	
	
	
	
	250,000 
	Equipment (net) (5-year life)
	
	345,000
	
	
	
	Inventory
	
	124,500
	
	
	
	Land
	
	125,000 
	
	
	
	Long-term liabilities (mature 12/31/15)
	
	
	
	
	176,500 
	Retained earnings, 1/1/12
	
	
	
	
	402,900 
	Supplies
	
	15,900 
	
	
	
	
	
	
	
	
	
	Totals
	$
	934,700
	
	$
	934,700 
	
	
	
	
	
	
	
	During 2012, Abernethy reported income of $124,500 while paying dividends of $16,000. During 2013, Abernethy reported income of $167,750 while paying dividends of $41,000.
	Assume that Chapman Company acquired Abernethy’s common stock for $819,850 in cash. As of January 1, 2012, Abernethy’s land had a fair value of $141,900, its buildings were valued at $251,800, and its equipment was appraised at $306,750. Chapman uses the equity method for this investment.
	Prepare consolidation worksheet entries for December 31, 2012, and December 31, 2013.
	Date
	General Journal
	Debit
	Credit
	Dec. 31, 2012
	
	
	
	Entry S
	Common Stock-Abernethy 
	
250,000
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2
	
	
	Additional Paid in Capital 
	
50,000
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2
	
	
	Retained Earnings, 1/1/12 
(It is given on the credit side of the trial balance)
	
402,900
2
	
	
	Investment in Abernethy 
	
	702,900 
	
	
	
	
	Entry A
	Land 
	
16,900
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2
	
	
	Buildings 
	
54,800
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2
	
	
	Goodwill 
($819,850 – 250,000 – 50,000 – 402,900) = 116,950
116,950 – 16,900 – 54,800 +38,250 = 83,500
	
83,500
2
	
	
	Equipment 
	
	
38,250
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2
	
	Investment in Abernethy 
	
	
116,950
2
	
	
	
	
	Entry I
	Equity in Subsidiary Earnings 
	118,450 
	
	
	Investment in Abernethy 
	
	118,450 
	
	
	
	
	Entry D
	Investment in Abernethy 
	16,000 
	
	
	Dividends Paid 
	
	16,000 
	
	
	
	
	Entry E
	Depreciation Expense 
	
6,050
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2
	
	
	Equipment 
	
7,650
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2
	
	
	Buildings 
	
	13,700 
	
	
	
	
	Dec. 31, 2013
	
	
	
	Entry S
	Common Stock-Abernethy 
	
250,000
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2
	
	
	Additional Paid in Capital 
	
50,000
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2
	
	
	Retained Earnings, 1/1/13 make the correction
$167,750 +$124,500 - ($41,000 - $16,000) = 267,250
	
267,250
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2
	
	
	Investment in Abernethy 
	
	567,250 
	
	
	
	
	Entry A
	Land 
	
16,900
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2
	
	
	Buildings 
	
41,100
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2
	
	
	Goodwill 
	
83,500
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2
	
	
	Equipment 
	
	
30,600
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2
	
	Investment in Abernethy 
	
	
110,900
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2
	
	
	
	
	Entry I
	Equity in Subsidiary Earnings 
	161,700 
	
	
	Investment in Abernethy 
	
	161,700 
	
	
	
	
	Entry D
	Investment in Abernethy 
	41,000 
	
	
	Dividends Paid 
	
	41,000 
	
	
	
	
	Entry E
	Depreciation Expense 
	
6,050
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2
	
	
	Equipment 
	
7,650
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2
	
	
	Buildings 
	
	13,700 
Problem 3-21 [LO4b]
-2-2
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http://ezto.mheclo
	Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2012. As of that date, Abernethy has the following trial balance:
	
	Debit
	
	Credit
	Accounts payable
	
	
	
	$
	50,800 
	Accounts receivable
	$
	48,200 
	
	
	
	Additional paid-in capital
	
	
	
	
	50,000 
	Buildings (net) (4-year life)
	
	161,000 
	
	
	
	Cash and short-term investments
	
	81,750 
	
	
	
	Common stock
	
	
	
	
	250,000 
	Equipment (net) (5-year life)
	
	242,500 
	
	
	
	Inventory
	
	135,500 
	
	
	
	Land
	
	129,500 
	
	
	
	Long-term liabilities (mature 12/31/15)
	
	
	
	
	167,000 
	Retained earnings, 1/1/12
	
	
	
	
	297,350 
	Supplies
	
	16,700 
	
	
	
	
	
	
	
	
	
	Totals
	$
	815,150 
	
	$
	815,150 
	
	
	
	
	
	
	
	During 2012, Abernethy reported income of $90,000 while paying dividends of $11,000. During 2013, Abernethy reported income of $134,750 while paying dividends of $34,000.
	
	Assume that Chapman Company acquired Abernethy’s common stock for $699,660 in cash. Assume that 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.
	
	Prepare consolidation worksheet entries for December 31, 2012, and December 31, 2013.
	Date
	General Journal
	Debit 
	Credit 
	Dec. 31, 2012
	
	
	
	Entry S
	Common Stock-Abernethy 
	
250,000
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2
	
	
	Additional Paid-In Capital 
	
50,000
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2
	
	
	Retained Earnings,

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