E 7-11 Consolidated income statement (constructive retirement of all subsidiary bonds)

Comparative income statements for Pam Corporation and its 80 percent–owned subsidiary, Sun Corporation, for the year ended December 31, 2017, are summarized as follows:

Pam Sun Sales $1,200,000 $600,000 Income from Sun 260,800 —

Bond interest income (includes discount amortization) 91,000 —

Cost of sales (750,000) (200,000)

Operating expenses (200,000) (200,000)

Bond interest expense — (60,000)

Net income $ 601,800 $140,000 Pam purchased its 80 percent interest in Sun at book value on January 1, 2016, when Sun’s assets and liabilities were equal to their fair values.

On January 1, 2017, Pam paid $783,000 to purchase all of Sun’s $1,000,000, 6 percent outstanding bonds. The bonds were issued at par on January 1, 2015, pay interest semiannually on June 30 and December 31, and mature on December 31, 2023.

REQuIRED: Prepare a consolidated income statement for Pam Corporation and Subsidiary for the year ended December 31, 2017.