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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,

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

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