P 5-1 Consolidated income and retained earnings (upstream sales, noncontrolling interest)

Pam Corporation acquired its 90 percent interest in Sun Corporation at its book value of $3,600,000 on January 1, 2016, when Sun had capital stock of $3,000,000 and retained earnings of $1,000,000.

The December 31, 2016 and 2017, inventories of Pam included merchandise acquired from Sun of $300,000 and $400,000, respectively. Sun realizes a gross profit of 40 percent on all merchandise sold. During 2016 and 2017, sales by Sun to Pam were $600,000 and $800,000, respectively.

Summary adjusted trial balances for Pam and Sun at December 31, 2017, follow (in thousands):

Pam Sun Cash $ 1,000 $ 200 Receivables—net 2,000 500 Inventories 2,400 1,000 Plant assets—net 2,500 4,800 Investment in Sun—90% 4,356 —

Cost of sales 8,000 3,900 Other expenses 3,400 1,600 Dividends 1,000 500

$24,656 $ 12,500 Pam Sun Accounts payable $ 1,500 $ 900 Other liabilities 600 600 Capital stock, $10 par 5,000 3,000 Retained earnings 3,692 1,500 Sales 13,000 6,500 Income from Sun 864 —

$24,656 $12,500 REQuI R E D : Prepare a combined consolidated income and retained earnings statement for Pam Corporation and Subsidiary for the year ended December 31, 2017.