Consolidating an International Subsidiary, Year of Acquisition

On February 1, 2016, Pathway Inc., a U.S. company, acquired all of the outstanding shares of Superbarn Supermarkets, an Australian chain, for A$180 million in cash. Superbarn's assets and liabilities were reported at amounts approximating fair value, but it had previously unrecorded intangible assets (5-year life, straight-line) valued at A$36 million. Superbarn's functional currency is the Australian dollar (A$). Pathway uses the complete equity method to record its investment in Superbarn on its own books. The January 31, 2017 trial balances of the two companies are below.

(in thousands)	Pathway Dr (Cr)	Superbarn Dr (Cr)
Cash and receivables	$ 27,000	A$ 9,000
Inventories	162,000	54,000
Plant and equipment, net	1,440,000	630,000
Investment in Superbarn	167,400	--
Liabilities	(1,573,200)	(621,000)
Capital stock	(45,000)	(18,000)
Retained earnings, February 1	(153,000)	(36,000)
Dividends	3,600	--
Sales revenue	(2,700,000)	(900,000)
Equity in net income of Superbarn	(6,480)	--
Equity in other comprehensive loss of Superbarn	4,680	--
Cost of goods sold	1,800,000	720,000
Operating expenses	873,000	162,000
	$ 0	A$ 0

Exchange rates:

February 1, 2016	$0.92/A$
Average for fiscal 2017	0.90/A$
January 31, 2017	0.85/A$

Goodwill arising from the acquisition of Superbarn was impaired by A$3.6 million in fiscal 2017.

a. Prepare a working paper to consolidate the trial balances of Pathway and Superbarn for fiscal 2017.

1. Translate Superbarn's January 31, 2017 trial balance.

Use negative signs with Cr (credit balance) answers.

Trial Balance (in thousands)	A$ Dr(Cr)	$/A$	$ Dr(Cr)
Cash and receivables	A$ 9,000	Answer	Answer
Inventories	54,000	Answer	Answer
Property and equipment, net	630,000	Answer	Answer
Liabilities	(621,000)	Answer	Answer
Capital stock	(18,000)	Answer	Answer
Retained earnings, February 1	(36,000)	Answer	Answer
Sales revenue	(900,000)	Answer	Answer
Cost of goods sold	7,200,000	Answer	Answer
Operating expenses	162,000	Answer	Answer
Translation gain or loss	--	(below)	Answer
	A$ 0		Answer

• Do not use negative signs with any of your answers.
• Using the drop-down menu, select the appropriate answer to indicate a translation gain or translation loss.

Translation Gain/Loss Schedule (in thousands)	A$	$/A$	$
Net assets, beginning	Answer	Answer	Answer
Net income	Answer	Answer	Answer
			Answer
Net assets, ending	Answer	Answer	Answer
AnswerTranslation gainTranslation loss			Answer

2. Prepare the consolidation working paper elimination journal entries (in thousands):

Consolidation Journal
Ref.	Description	Debit	Credit
(C)	AnswerEquity in net income of SuperbarnEquity in OCL of SuperbarnInvestment in SuperbarnCapital stockRetained earnings, beginningIdentifiable intangiblesGoodwillOperating expensesOther comprehensive lossOther comprehensive income	Answer	Answer
	AnswerEquity in net income of SuperbarnEquity in OCL of SuperbarnInvestment in SuperbarnCapital stockRetained earnings, beginningIdentifiable intangiblesGoodwillOperating expensesOther comprehensive lossOther comprehensive income	Answer	Answer
	Investment in Superbarn	Answer	Answer
(E)	Capital stock	Answer	Answer
	AnswerEquity in net income of SuperbarnEquity in OCL of SuperbarnInvestment in SuperbarnCapital stockRetained earnings, beginningIdentifiable intangiblesGoodwillOperating expensesOther comprehensive lossOther comprehensive income	Answer	Answer
	AnswerEquity in net income of SuperbarnEquity in OCL of SuperbarnInvestment in SuperbarnCapital stockRetained earnings, beginningIdentifiable intangiblesGoodwillOperating expensesOther comprehensive lossOther comprehensive income	Answer	Answer
(R)	Identifiable intangibles	Answer	Answer
	Goodwill	Answer	Answer
	AnswerEquity in net income of SuperbarnEquity in OCL of SuperbarnInvestment in SuperbarnCapital stockRetained earnings, beginningIdentifiable intangiblesGoodwillOperating expensesOther comprehensive lossOther comprehensive income	Answer	Answer
	AnswerEquity in net income of SuperbarnEquity in OCL of SuperbarnInvestment in SuperbarnCapital stockRetained earnings, beginningIdentifiable intangiblesGoodwillOperating expensesOther comprehensive lossOther comprehensive income	Answer	Answer
(O)	AnswerEquity in net income of SuperbarnEquity in OCL of SuperbarnInvestment in SuperbarnCapital stockRetained earnings, beginningIdentifiable intangiblesGoodwillOperating expensesOther comprehensive lossOther comprehensive income	Answer	Answer
	AnswerEquity in net income of SuperbarnEquity in OCL of SuperbarnInvestment in SuperbarnCapital stockRetained earnings, beginningIdentifiable intangiblesGoodwillOperating expensesOther comprehensive lossOther comprehensive income	Answer	Answer
	Identifiable intangibles	Answer	Answer
	Goodwill	Answer	Answer

3. Complete the consolidation working paper.

Use negative signs with your credit (Cr) balance answers in the Superbarn and Consolidated Balances columns.

Consolidation Working Paper
	Accounts Taken From Books		Eliminations
(in thousands)	Pathway Dr (Cr)	Superbarn Dr (Cr)		Debit	Credit		Consolidated Balances Dr (Cr)
Cash and receivables	$ 27,000	Answer					Answer
Inventories	162,000	Answer					Answer
Plant and equipment, net	1,440,000	Answer					Answer
Investment in Superbarn	167,400	--			Answer	(C)	Answer
					Answer	(E)	--
					Answer	(R)	--
Identifiable intangibles	--	--	(R)	Answer	Answer	(O)	Answer
Goodwill	--	--	(R)	Answer	Answer	(O)	Answer
Liabilities	(1,573,200)	Answer					Answer
Capital stock	(45,000)	Answer	(E)	Answer			Answer
Retained earnings, February 1	(153,000)	Answer	(E)	Answer			Answer
Dividends	3,600	--					Answer
Sales revenue	(2,700,000)	Answer					Answer
Equity in net income-Superbarn	(6,480)	--	(C)	Answer			Answer
Equity in OCL-Superbarn	4,680	--			Answer	(C)	Answer
Cost of goods sold	1,800,000	Answer					Answer
Operating expenses	873,000	Answer	(O)	Answer			Answer
Translationloss	--	Answer	(R)	Answer	Answer	(O)	Answer
Total	$ 0	Answer		Answer	Answer		Answer

b. Present the consolidated balance sheet and statement of comprehensive income for fiscal 2017. Do not use negative signs with your answers in the consolidated statement of comprehensive income below.

Pathway Inc. and Subsidiary Consolidated Statement of Comprehensive Income For the Year Ended January 31, 2017 (in thousands)
Sales revenue	Answer
Cost of goods sold	Answer
Gross margin	Answer
Operating expenses	Answer
Net income	Answer
Translation loss (other comprehensive loss)	Answer
Comprehensive income	Answer

Do not use negative signs with your answers in the consolidated balance sheet below.

Pathway Inc. and Subsidiary Consolidated Balance Sheet January 31, 2017 (in thousands)
Assets
Cash and receivables	Answer
Inventories	Answer
Plant and equipment, net	Answer
Identifiable intangibles	Answer
Goodwill	Answer
Total assets	Answer
Liabilities and stockholders' equity
Liabilities	Answer
Stockholders' equity:
Capital stock	Answer
Retained earnings	Answer
Accumulated other comprehensive loss	Answer
Total stockholders' equity	Answer
Total liabilities and stockholders' equity