Por Corporation acquired its 90 percent interest in Sam Corporation at its book value of $1,800,000 on January 1, 2011, when Sam had capital stock of $1,500,000 and retained earnings of $500,000. The December 31, 2011 and 2012, inventories of Por included merchandise acquired from Sam of $150,000 and $200,000, respectively. Sam realizes a gross profit of 40 percent on all merchandise sold. During 2011 and 2012, sales by Sam to Por were $300,000 and $400,000, respectively. Summary adjusted trial balances for Por and Sam at December 31, 2012, follow (in thousands):

REQUIRED: Prepare a combined consolidated income and retained earnings statement for Por Corporation and Subsidiary for the year ended December 31,2012.

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Por Sam $ 500 $ 100 Cash Receivables-net Inventories 1.000 1,200 250 500 Plant assets-net 1,250 2,400 Investment in Sam-90% 2,178 Cost of sales 4,000 1,700 1,950 800 Other expenses Dividends 500 $12.328 250 $6,250 Por Sam $ 750 300 2.500 1,846 6,500 432 $ 450 Accounts payable Other liabilities Capital stock. $10 par 300 1,500 750 Retained earnings Sales 3,250 Income from Sam $12.328 $6.250