P 5-7 Consolidation workpapers (upstream sales, noncontrolling interest)

Pam Corporation purchased a 90 percent interest in Sun Corporation on December 31, 2015, for

$2,700,000 cash, when Sun had capital stock of $2,000,000 and retained earnings of $500,000. All Sun’s assets and liabilities were recorded at fair values when Pam acquired its interest. The excess of fair value over book value is due to previously unrecorded patents and is being amortized over a 10-year period.

The Pam–Sun affiliation is a vertically integrated merchandising operation, with Sun selling all of its output to Pam Corporation at 140 percent of its cost. Pam sells the merchandise acquired from Sun at 150 percent of its purchase price from Sun. All of Pam’s December 31, 2016, and December 31, 2017, inventories of $280,000 and $420,000, respectively, were acquired from Sun. Sun’s December 31, 2016, and December 31, 2017, inventories were $800,000 each.

Pam’s accounts payable at December 31, 2017, includes $100,000 owed to Sun from 2017 purchases.

Comparative financial statements for Pam and Sun Corporations at and for the year ended December 31, 2017, are as follows (in thousands):
Pam Sun Combined Income and Retained Earnings Statement for the Year Ended December 31, 2017 Sales $8,190 $5,600 Income from Sun 819 —
Cost of sales (5,460) (4,000)
Other expenses (1,544) (600)
Net income 2,005 1,000 Add: Beginning retained earnings 1,200 700 Deduct: Dividends (1,000) (500)
Retained earnings December 31, 2017 $2,205 $1,200 Balance Sheet at December 31, 2017 Cash $ 753 $ 500 Inventory 420 800 Other current assets 600 200 Plant assets—net 3,000 3,000 Investment in Sun 3,132 —
Total assets $7,905 $4,500 Current liabilities $1,700 $1,300 Capital stock 4,000 2,000 Retained earnings 2,205 1,200 Total equities $7,905 $4,500 REQuIRED: Prepare consolidation workpapers for Pam Corporation and Subsidiary for the year ended December 31, 2017.