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Chapman Company obtains 100 percent of Abernethy Companys stock on January 1, 2017. As of that date, Abernethy has the following trial balance Credit $ 56,700 Debit Accounts payable Accounts receivable Additional paid-in capital Buildings (net) (4-year remaining life) Cash and short-term investments Common stochk Equipment (net) (5-year remaining life) Inventory Land Long-term liabilities (mature 12/31/20) Retained earings, 1/1/17 Supplies 43,800 50,000 143,000 80,250 250,000 295,000 110,500 112,000 171,000 268,750 11,900 $796,450 Totals 796,450 During 2017, Abernethy reported net income of $122,500 while declaring and paying dividends of $15,000. During 2018, Abernethy reported net income of $159,250 while declaring and paying dividends of $49,000 Assume that Chapman Company acquired Abernethys common stock for $698,050 in cash. As of January 1, 2017, Abernethys land had a fair value of $123,900, its buildings were valued at $219,400, and its equipment was appraised at $254,500. Chapman uses the equity method for this investment. Prepare consolidation worksheet entries for December 31, 2017, and December 31, 2018. (If no entry is required for a transaction/event, select No journal entry required in the first account field.)

Questions:

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

2. Prepare entry A to recognize allocations attributed to fair value of specific accounts at acquisition date with residual fair value recognized as goodwill.

3. Prepare entry I to eliminate $122,500 income accrual for 2017 less $11,000 amortization recorded by parent using equity method.

4. Prepare entry D to eliminate intra-entity dividend transfers.

5. Prepare entry E to recognize current year amortization expense.

6. Prepare entry S to eliminate beginning stockholders' equity of subsidiary—the Retained Earnings account has been adjusted for 2017 income and dividends. Entry *C is not needed because equity method was applied.

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

8. Prepare entry I to eliminate $159,250 income accrual less $11,000 amortization recorded by parent during 2018 using equity method.

9. Prepare entry D to eliminate intra-entity dividend transfers.

10. Prepare entry E to recognize current year amortization expense.

Answer
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