Consolidation Working Paper Eliminations, Intercompany Merchandise Sales
Prance Athleticwear Company owns all of the voting stock of Stallion Shoes. Acquisition cost was $7 million in excess of Stallions book value of $3 million, and the excess was attributed entirely to goodwill. As of the beginning of the current year, goodwill is impaired by $500,000. Goodwill is not impaired in the current year. Following is information on intercompany merchandise transactions between Prance and Stallion for the current year:
Intercompany profit in Prances beginning inventory, purchased from Stallion, is $300,000.
Intercompany profit in Stallions beginning inventory, purchased from Prance, is $400,000.
Intercompany profit in Prances ending inventory, purchased from Stallion, is $200,000.
Intercompany profit in Stallions ending inventory, purchased from Prance, is $250,000.
Total sales from Stallion to Prance, at the price charged to Prance, were $7 million.
Total sales from Prance to Stallion, at the price charged to Stallion, were $5 million.
Prance uses the complete equity method to account for its investment in Stallion on its own books. The separate trial balances for Prance and Stallion at the end of the current year are below.
(in thousands)		Prance	Stallion
		Dr (Cr)	Dr (Cr)
Current assets		$2,500	$1,500
Plant and equipment, net		350,000	250,000
Investment in Stallion		12,050	--
Liabilities		-353,300	-245,500
Capital stock		-2,000	-1,000
Retained earnings, beginning		-6,000	-4,000
Sales revenue		-275,000	-150,000
Equity in net income		-1,250	--
Cost of sales		200,000	90,000
Operating expenses		73,000	59,000
Total		$0	$0
Prepare a schedule calculating equity in net income for the current year, appearing on Prances separate books ($1,250,000) and the end-of-year balance for Investment in Stallion, appearing on Prances separate books ($12,050,000).
Enter answers in thousands ($400,000 equals $400 in thousands).
Use negative signs with answers that reduce net income and the investment balance.
(in thousands)
Stallions reported income			?
Confirmed profit in beginning inventory			?
Unconfirmed profit in ending inventory			?
Equity in net income			$1,250
(in thousands)
Acquisition cost			?
Change in book value to the beginning of the year			?
Goodwill write-off to the beginning of the year			?
Unconfirmed profit in last years ending inventory			?
Investment balance, beginning of year			?
Equity in net income, current year			?
Investment balance, end of year			$12,050
Prepare a working paper to consolidate the trial balances of Prance and Stallion. Label your eliminating entries (C), (I), (E), and (R).
Enter answers in thousands ($400,000 equals $400 in thousands).
Use negative signs with Cr (credit) answers in the Consolidated Balances Dr (Cr) column.
Consolidation Working Paper
(in thousands)
Trial Balances			Eliminations		Consolidated
Taken From Books					Balances
	Prance	Stallion
	Dr (Cr)	Dr (Cr)	Debit	Credit	Dr (Cr)
Current assets	$2,500	$1,500		?	(1-3) ?
Plant and equipment, net	350,000	250,000			?
Investment in Stallion	12,050	--	(1-2) ?	? (C)	?
				? (E)
				? (R)
Goodwill	--	--	(R) ?		?
Liabilities	-353,300	-245,500
Capital stock	-2,000	-1,000	(E) ?		?
Retained earnings, beg.	-6,000	-4,000	(I-1) ?		?
			(E) ?		?
Sales revenue	-275,000	-150,000	(I-4) ?		?
Equity in net income of Stallion	-1,250	--	(C) ?		?
Cost of sales	200,000	90,000	(I-3) ?	?	(I-1) ?
				?	(I-2)
				?	(I-4)
Operating expenses	73,000	59,000			?
	--	--	?	?	?