Consolidation Working Paper Eliminations, Variety of Intercompany Transactions

Pacific Athletic Corporation owns all of the voting stock of Solovair Apparel. Acquisition cost was $10 million in excess of Solovairs book value of $2 million, and the excess was attributed entirely to goodwill. As of the beginning of the current year, goodwill impairment is $4 million. Current year goodwill impairment is $200,000. Following is information on intercompany transactions between Pacific and Solovair for the current year:

Pacific sold land to Solovair in a previous year at a gain of $300,000. Solovair sold the land to an outside party in the current year.

Intercompany profit in Pacifics beginning inventory, purchased from Solovair, is $100,000.

Intercompany profit in Pacifics ending inventory, purchased from Solovair, is $120,000.

Total sales from Solovair to Pacific, at the price charged to Pacific, were $5 million.

Solovair sold equipment with a book value of $2 million to Pacific three years ago for $4.5 million. The equipment had a remaining life of five years, straight-line. Pacific has held the equipment for three years as of the end of the current year.

The separate trial balances for Pacific and Solovair at the end of the current year follow: Pacific Solovair Dr (Cr) Dr (Cr) Current assets $10,000,000 $4,000,000 Plant and equipment, net 150,000,000 92,000,000 Investment in Solovair 15,305,000 Liabilities (145,860,000) (85,375,000) Capital stock (1,000,000) (500,000) Retained earnings, beginning (20,000,000) (8,400,000) Accumulated other comprehensive income, beginning (200,000) (100,000) Sales revenue and gains (200,000,000) (50,000,000) Equity in net income (2,180,000) Cost of sales 120,000,000 38,000,000 Operating expenses 74,000,000 10,400,000 Other comprehensive income (40,000) (25,000) Equity in other comprehensive income (25,000) Total $0 $0 Required Prepare a working paper to consolidate the trial balances of Pacific and Solovair. Label your eliminating entries (C), (I), (E), (R), and (O). Use negative signs with Cr (credit) answers in the Consolidated Balances Dr (Cr) column. Enter answers in thousands ($10,000,000 equals $10,000 in thousands). Consolidated Balances Consolidation Working Paper Trial Balances Taken from Books Eliminations Paymore Spire Dr (Cr) Dr (Cr) Debit Credit 10,000 4,000 150,000 92,000 (1-6) 0 15,305 -- (1-1) 0 (in thousands) Current assets Plant and equipment, net Investment in Solovair Dr (Cr) 0 (1-3) 0 (1-5) 0 (C) 0 (E) 0 (R) 0 (0) 0 Goodwill Liabilities Capital stock Retained earnings, beg. -- (R) (145,860) (85,375) (1,000) (500) (E) (20,000) (84,400) (1-2) (1-5) 0 (1-1) AOCI, beg. Sales revenue and gains Equity in net income of Solovair Cost of sales (200) (100) (E) (200,000) (50,000) (1-4) (2,180) -- (C) 120,000 38,000 (1-3) 0 O (1-2) 0 (1-4) 0 (1-6) (0) 0 Operating expenses Other comprehensive income Equity in OCI of Solovair 74,000 (40) (25) $- 10,400 (25) -- $- (C) 0 0 $ $ 0