Question

E6.14 Consolidation Working Paper Eliminations, Intercompany Merchandise Sales. Noncon- trolling Interest Paymore Shoxes cuired 80 percent of the voting stock of Spire Footwear on Feb. ruary 1, 2017, for S21 million. The fair value of the noncontrolling interest at the acquisition date was 53 million. The excess of Spire's fair value over its S4 million book value was attributed to limited life identifiable intangible assets ($5 million, 5-year life) and goodwill Paymore's fiscal year ends January 31. As of February 1, 2020, the goodwill and identifiable intangibles are not impuired. There is no im- pairment of either intangible in fiscal 2021. Spire transfers merchandise to Paymore on a regular basis, at a markup of 255 on cost. Following is information on intercompany merchandise transactions for fiscal 2021: • Balance in Paymore's beginning inventory, purchased from Spire, $1,000,000. • Balance in Paymore's 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, 2021, are below. Spire Dr (CH) 4,500 750,000 $ (in thousands) Current assets Plant and equipment, net. Intangibles .... Investment in Spire.. Liabilities. Capital stock ... Retained earnings, beginning. Sales revenue....... Equity in net income... Cost of sales.......... Operating expenses... Total .......... Paymore Dr (Cr) $ 10,000 1,200,000 101,360 22,080 (945,000) 28.000) (340,000) (1.200,000) (440) 980,000 200.000 (745,000 (3.000) (5,000) 300,000) 200.000 98,500 Required a. Calculate the allocation of goodwill between controlling and noncontrolling interests. b. Calculate equity in net income, appearing on Paymore's separate books (5440,000), and the noncon trolling interest in net income for fiscal 2021. c. Prepare a working paper to consolidate the January 31, 2021. trial balances of Paymore and Spire. Label your eliminating entries (C. (D). (E).(R).(O), and (N).

Answer 1

a) Calculation for allocation of goodwill leetwear Controlling & non controlling interit - 1 - - 1.) Fair value of non controlling interest at the acquisition dottu 20 / ] $3m 2.) then fair value of total interest ! (53m/20%) $15m 3) Book value of spire's footwear & um 4) Excess over book value $1 m $0) Limited - lige identifiable intongilele ... ossets $5m 6) attributable to good will $6m 2) alteration of good will a) Controlling interest (80%) $4.8m b) Non controlling interest (20%) $1.2m less-

b) Calculation of Tourity in Net Incense D Given Controlling interestli 801) $440,000 2) then total Equity in net income $440,000/0.8 $5,50,000 3. hence non controlling interest portion (ei 2010 $ 110,000