Pan Corporation acquired an 85 percent interest in Sly Corporation on August 1, 2011, for $522,750, equal to 85 percent of the underlying equity of Sly on that date. In August 2011, Sly sold inventory items to Pan for $60,000 at a gross profit of $15,000. Onethird of these items remained in Pan's inventory at December 31, 2011. On September 30, 2011, Pan sold an inventory item (equipment) to Sly for $50,000 at a gross profit to Pan of $10,000. When this equipment was placed in service by Sly, it had a five-year remaining useful life and no expected salvage value. Sly's dividends were declared in equal amounts on June 15 and December 15, and its income was earned in relatively-equal amounts throughout each quarter of the year. Pan applies the equity method, such that its net income is equal to the controlling share of consolidated net income. Financial statements for Pan and Sly are as follows (in thousands):

REQUIRED: Prepare a consolidation workpaper for the year ended December 31,2011.

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Pan Sly Combined Income and Retained Earnings Statement for the Year Ended December 31, 2011 Sales Income from Sly Cost of sales $ 910 7.5 $400 (500) (200.0) 217.5 192.5 (250) (90) 60 Operating expenses Net income Add: Beginning retained earnings Deduct: Dividends 100 (100) $ 310 (40) Retained earnings December 31 $120 Balance Sheet at December 31, 2011 Cash $ 33.75 $ 10 Dividends receivable 17 Accounts receivable-net 120 70 Inventories 300 150 Plant assets-net Investment in Sly85% Total assets 880 500 513.25 $1.864 $ 154 $730 5 90 Accounts payable Dividends payable Capital stock Retained earnings Total equities 1.400 500 310 120 $1.864 $730