Consolidation Working Paper Eliminations, Intercompany Merchandise Sales, Noncontrolling Interest

Paymore Shoes acquired 80 percent of the voting stock of Spire Footwear on February 1, 2020, for $21 million. The fair value of the noncontrolling interest at the acquisition date was $3 million. The excess of Spires fair value over its $4 million book value was attributed to limited-life identifiable intangible assets ($5 million, 5-year life) and goodwill. Paymores fiscal year ends January 31. As of February 1, 2023, the goodwill and identifiable intangibles are not impaired. There is no impairment of either intangible in fiscal 2024. 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 2024:

Balance in Paymores beginning inventory, purchased from Spire, $1,000,000.

Balance in Paymores 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, 2024, are below.

(in thousands)	Paymore Dr (Cr)	Spire Dr (Cr)
Current assets	$10,000	$4,500
Plant and equipment, net	1,200,000	750,000
Intangibles	101,360	--
Investment in Spire	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

Required

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

Enter answers in thousands.

(in thousands)
Goodwill		Answer
Allocation to controllling interests		Answer
Allocation to noncontrolling interests		Answer

b. Calculate equity in net income, appearing on Paymores separate books ($440,000), and the noncontrolling interest in net income for fiscal 2024.

• Enter answers in thousands ($440,000 equals $440 in thousands)
• Use a negative sign with answers that reduce net income amounts.

(in thousands)		Total	Equity in NI	Noncontrolling interest in NI
Spires reported net income		Answer	Answer	Answer
Revaluation write-off:
Identifiable intangibles		Answer	Answer	Answer
Intercompany transactions:
Confirmed profit on upstream beg. inventory		Answer	Answer	Answer
Unconfirmed profit on upstream end. inventory		Answer	Answer	Answer
		Answer	Answer	Answer

c. Prepare a working paper to consolidate the January 31, 2024, trial balances of Paymore and Spire. Label your eliminating entries (C), (I), (E), (R), (O), and (N).

• Enter answers in thousands ($440,000 equals $440 in thousands)
• Use negative signs with Cr (credit) answers in the Consolidated Balances Dr(Cr) column.

Consolidation Working Paper
		Trial Balances Taken From Books			Eliminations			Consolidated Balances
(in thousands)		Paymore Dr (Cr)	Spire Dr (Cr)		Debit	Credit		Dr (Cr)
Current assets		$10,000	$4,500			Answer	(I-2)	Answer
Plant and equipment, net		1,200,000	750,000					Answer
Intangibles		101,360	--	(R)	Answer	Answer	(O)	Answer
Investment in Spire		22,080	--			Answer	(C)	Answer
						Answer	(E)
						Answer	(R)
Goodwill		--	--	(R)	Answer			Answer
Liabilities		(945,000)	(745,000)					Answer
Capital stock		(28,000)	(3,000)	(E)	Answer			Answer
Retained earnings, beg.		(340,000)	(5,000)	(I-1)	Answer			Answer
				(E)	Answer
Noncontrolling interest		--	--			Answer	(E)	Answer
						Answer	(R)
						Answer	(N)
Sales revenue		(1,200,000)	(300,000)	(I-3)	Answer			Answer
Equity in net income of Spire		(440)	--	(C)	Answer			Answer
Cost of sales		980,000	200,000	(I-2)	Answer	Answer	(I-1)	Answer
						Answer	(I-3)
Operating expenses		200,000	98,500	(O)	Answer			Answer
Noncontrolling interest in NI		--	--	(N)	Answer			Answer
		$--	$--		Answer	Answer		Answer