E 5-5 Upstream sales Pam Corporation owns an 80 percent interest in Sun Corporation acquired several years ago. Sun regularly sells merchandise to Pam at 125 percent of Sun’s cost. Gross profit data of Pam and Sun for 2017 are as follows:

Pam Sun Sales $1,000 $800 Cost of goods sold 800 640 Gross profit $ 200 $160 During 2017, Pam purchased inventory items from Sun at a transfer price of $400. Pam’s December 31, 2016 and 2017, inventories included goods acquired from Sun of $100 and $125, respectively. Assume Pam sells the inventory purchased from Sun in the following year.