Pal Corporation acquired 70 percent of the outstanding voting stock of Sal Corporation for $91,000 cash on January 1, 2011, when Sal's stockholders' equity was $130,000. All the assets and liabilities of Sal were stated at fair values (equal to book values) when Pal acquired its 70 percent interest. Financial statements of the two corporations at and for the year ended December 31, 2011, are summarized as follows (in thousands):

REQUIRED1. Prepare consolidation workpapers for Pal Corporation and Subsidiary for 2011.2. Prepare a consolidated income statement and a consolidated balance sheet for Pal Corporation andSubsidiary.

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Pal Sal Combined Income and Retained Earnings Statements for the Year Ended December 31 $620 Sales $200 Income from Sal Cost of Goods Sold 21 (400) (130) Operating expenses Net income Add: Retained earnings January 1 Deduct: Dividends (154) 87 130 (40) 30 22 (60) (20) S157 $ 32 Retained earnings December 31 Balance Sheet at December 31 $ 91 $ 30 Cash Receivables-net Inventories 120 48 60 40 Plant and equipment-net Investment in Sal 240 98 70 $597 $200 Total assets $ 60 $ 36 Accounts payable Other liabilities Capital stock, $10 par Other paid-in capital Retained earnings Total equities 40 24 300 40 100 157 32 $597 $200