Pay Corporation acquired a 75 percent interest in Sue Corporation for $1,200,000 on January 1, 2011, when Sue's equity consisted of $600,000 capital stock and $200,000 retained earnings. The fair values of Sue's assets and liabilities were equal to book values on this date, and goodwill is not amortized. Pay uses the equity method of accounting for Sue.

During 2011, Pay sold inventory items to Sue for $320,000, and at December 31, 2011, Sue's inventory included items on which there were $40,000 unrealized profits. During 2012, Pay sold inventory items to Sue for $520,000, and at December 31, 2012, Sue's inventory included items on which there were $80,000 unrealized profits.

On December 31, 2012, Sue owed Pay $60,000 on account for merchandise purchases. The financial statements of Pay and Sue Corporations at and for the year ended December 31, 2012, are summarized as follows (in thousands):

REQUIRED
Prepare consolidation workpapers for Pay Corporation and Subsidiary for the year ended December 31, 2012.

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Pay Combined Income and Retained Earnings Statements for the Year Ended December 31, 2012 $ 2,400 410 (1,080) (580) 1,150 730 (600) S1,600 Income from Sue Cost of sales Operating expenses (840) (160) Net income Beginning retained earnings Deduct: Dividends (200) Retained earnings December 31, 2012 Balance Sheet at December 31, 2012 Cash Accounts receivable Dividends receivable Inventories S 340 $ 120 240 320 920 800 1,540 320 Buildings-net Investment in Sue Total assets Accounts payable Dividends payable Other liabilities Common stock, $10 par Retained earnings S 900 280 620 1800 1,280 $ 400 160 760 Total equities