P 11-7 Journal entry to record push-down, subsidiary balance sheet, and investment income Pam Corporation paid $960,000 cash for a 100 percent interest in Sun Corporation on January 1, 2017, when Sun’s stockholders’ equity consisted of $400,000 capital stock and $160,000 retained earnings.

Sun’s balance sheet on December 31, 2016, is summarized as follows (in thousands):

Book Value Fair Value Cash $ 60 $ 60 Accounts receivable—net 140 140 Inventories 120 160 Land 100 150 Buildings—net 200 380 Equipment—net 180 150 Total assets $ 800 $1,040 Accounts payable $ 100 $ 100 Other liabilities 140 $ 120 Capital stock 400 Retained earnings 160 Total equities $ 800 Pam uses the equity method to account for its interest in Sun. The amortization periods for the fair value/book value differentials at the time of acquisition were as follows:

$ 40,000 Undervalued inventories (sold in 2017)

50,000 Undervalued land 180,000 Undervalued buildings (10-year useful life remaining)

(30,000) Overvalued equipment (5-year useful life remaining)

20,000 Other liabilities (2 years before maturity)

140,000 Goodwill 418 CHAPTER 11 REQuIRED 1. Prepare a journal entry on Sun’s books to push down the values reflected in the purchase price. Use entity theory.

2. Prepare a balance sheet for Sun Corporation on January 1, 2017.

3. Sun’s net income for 2017 under the new push-down accounting system is $180,000. What is Pam’s income from Sun for 2017?