Paymore Shoes acquired 80 percent of the voting stock of Spire Footwear on February 1, 2014, for \($21\) million. The fair value of the noncontrolling interest at the acquisition date was \($3\) million. The excess of Spire’s fair value over its \($4\) million book value was attributed to limited life identifiable intangible assets (\($5\) million, 5-year life) and goodwill. Paymore’s fiscal year ends January 31. As of February 1, 2017, the goodwill and identifiable intangibles are not impaired. There is no impairment of either intangible in fiscal 2018. Spire transfers merchandise to Paymore on a regular basis, at a markup of 25% on cost. Following is information on intercompany merchandise transactions for fiscal 2018:

• Balance in Paymore’s beginning inventory, purchased from Spire, \($1,000,000.\)

• Balance in Paymore’s ending inventory, purchased from Spire, \($750,000.\)

• Total sales from Spire to Paymore, at the price charged to Paymore, \($25\) million.

Paymore uses the complete equity method to account for its investment in Spire on its own books. The separate trial balances for Paymore and Spire at January 31, 2018, are below.

Required

a. Calculate the allocation of goodwill between controlling and noncontrolling interests.

b. Calculate the noncontrolling interest in net income for fiscal 2018.

c. Prepare a working paper to consolidate the January 31, 2018, trial balances of Paymore and Spire.
Label your eliminating entries (C), (I), (E), (R), (O), and (N).

Transcribed Image Text:

(in thousands) Current assets Plant and equipment, net. Intangibles. Investment in Spire. Paymore Dr (Cr) $ 10,000 1,200,000 101,360 Spire Dr (Cr) $ 4,500 750,000 22,080 Liabilities... (945,000) (745,000) Capital stock (28,000) (3,000) Retained earnings, beginning. (340,000) (5,000) Sales revenue..... (1,200,000) (300,000) Equity in net income.. (440) Cost of sales... 980,000 200,000 Operating expenses. 200,000 98,500 Total.... 0 0