Pam Corporation acquired a 70 percent interest in Sam Corporation on January 1, 2011, for $420,000 cash, when Sam's equity of Sam consisted of $300,000 capital stock and $200,000 retained earnings. On July 1, 2012, Pam acquired an additional 10 percent interest in Sam for $67,500, to bring its interest in Sam to 80 percent. The financial statements of Pam and Sam Corporations at and for the year ended December 31, 2012, are as follows (in thousands):

ADDITIONAL INFORMATION

1. The fair value/book value differential from Pam's two purchases of Sam was goodwill.

2. Pam Corporation sold inventory items to Sam during 2011 for $60,000, at a gross profit of $10,000. During 2012, Pam's sales to Sam were $48,000, at a gross profit of $8,000. Half of the 2011 intercompany sales were inventoried by Sam at year-end 2011, and three-fourths of the 2012 sales remained unsold by Sam at year-end 2012. Sam owes Pam $25,000 from 2012 purchases.

3. At year-end 2011, Sam purchased land from Pam for $20,000. The cost of this land to Pam was $12,000.

4. Pam sold machinery with a book value of $40,000 to Sam for $80,000 on July 8, 2012. The machinery had a five-year useful life at that time. Sam uses straight-line depreciation without considering salvage value on the machinery.

5. Pam uses a one-line consolidation in accounting for Sam. Both Pam and Sam Corporations declared dividends for 2012 in equal amounts in June and December.

REQUIRED: Prepare a workpaper to consolidate the financial statements of Pam Corporation and Subsidiary for the year ended December 31,2012.

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Pam Sam Combined Income and Retained Earnings Statement for the Year Ended December 31 Sales $ 900 $500 Income from Sam 38 Gain on machinery Cost of sales 40 (400) (300) (60) (40 Depreciation expense Other expenses Net income Add: Beginning retained earnings Less: Dividends (90) (160) 328 100 155 250 (200) $ 283 (50) $300 Retained earnings December 31 Balance Sheet at December 31 Cash $ 20 $ 80 Accounts receivable 130 30 Dividends receivable 20 Inventories 90 70 Other current items 20 80 Land Buildings-net Machinery-net Investment in Sam 50 40 60 105 100 510 320 Total assets Accounts payable Dividends payable Other liabilities Capital stock, $10 par Retained earnings Total equities $1,000 $ 177 $725 S 40 100 25 140 60 300 300 300 $725 283 $1.000