E 6-3 Computation of net income for upstream and downstream sales of land Patay Corporation acquired a 90 percent interest in Satay Corporation, when the book value of Satay’s net assets was equal to their fair value in 2014. On January 1, 2015, Patay sold land with a book value of $50,000 to Satay for $75,000 and, at the same time, Satay sold land with a book value of $20,000 to Patay for $25,000. Both Patay and Satay still owned the land at 31 December 2016. The separate income statements of Patay and Satay for 2015 and 2016 are summarized below (in thousands):

2015 2016 Patay Satay Patay Satay Sales $5,000 $1,200 $6,000 $1,500 Cost of Sales 3,000 900 3,800 1,000 Depreciation expense 300 80 350 100 Other expense 500 50 400 75 Net income $1,200 $170 $1,450 $325 REQuIRED: Compute the consolidated net income for 2015 and 2016.

E 6-4 Journal entries and consolidated income statement (downstream sale of building)

Sun is a 90 percent–owned subsidiary of Pam Corporation, acquired at book value several years ago. Comparative separate-company income statements for the affiliates for 2016 are as follows:

Pam Corporation Sun Corporation Sales $750,000 $350,000 Income from Sun 54,000 —

Gain on building 15,000 —

Income credits 819,000 350,000 Cost of sales 500,000 200,000 Operating expenses 150,000 75,000 Income debits 650,000 275,000 Net income $169,000 $ 75,000 On January 5, 2016, Pam sold a building with a 10-year remaining useful life to Sun at a gain of $15,000. Sun paid dividends of $50,000 during 2016.

REQuIRED 1. Reconstruct the journal entries made by Pam during 2016 to account for its investment in Sun. Explanations of the journal entries are required.