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 Dr (Cr)	Solovair 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).

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	4,000			Answer	(I-3)	Answer
Plant and equipment, net		150,000	92,000	(I-6)	Answer	Answer	(I-5)	Answer
Investment in Solovair		15,305	--	(I-1)	Answer	Answer	(C)	Answer
						Answer	(E)
						Answer	(R)
Goodwill		--	--	(R)	Answer	Answer	(O)	Answer
Liabilities		(145,860)	(85,375)					Answer
Capital stock		(1,000)	(500)	(E)	Answer			Answer
Retained earnings, beg.		(20,000)	(84,400)	(I-2)	Answer			Answer
				(I-5)	Answer
				(E)	Answer
AOCI, beg.		(200)	(100)	(E)	Answer			Answer
Sales revenue and gains		(200,000)	(50,000)	(I-4)	Answer	Answer	(I-1)	Answer
Equity in net income of Solovair		(2,180)	--	(C)	Answer			Answer
Cost of sales		120,000	38,000	(I-3)	Answer	Answer	(I-2)	Answer
						Answer	(I-4)
Operating expenses		74,000	10,400	(O)	Answer	Answer	(I-6)	Answer
Other comprehensive income		(40)	(25)					Answer
Equity in OCI of Solovair		(25)	--	(C)	Answer			Answer
		$ --	$ --		$Answer	$Answer		$Answer