P4-11 Balance sheet (four years after acquisition, fair value/book value differentials)

Pam Corporation paid $170,000 for an 80 percent interest in Sun Corporation on December 31, 2016, when Sun’s stockholders’ equity consisted of $100,000 capital stock and $50,000 retained earnings.

A summary of the changes in Pam’s Investment in Sun account from December 31, 2016, to December 31, 2020, follows (in thousands):

Investment cost December 31, 2016 $170 Increases 80% of Sun’s net income 2017 through 2020 112 282 Decreases 80% of Sun’s dividends 2017 through 2020 $56 80% of Amortization of excess fair value over book value:

Assigned to inventories, $8,750 (sold in 2017) 7 Assigned to plant assets, $22,500 (depreciated over a nine-year period) 2017 through 2020 8

Assigned to patents, $31,250 (amortized over a five-year period) 2017 through 2020 20 91 Investment balance December 31, 2020 $191 Financial statements for Pam and Sun at and for the year ended December 31, 2020, are summarized as follows (in thousands):
Pam Sun Combined Income and Retained Earnings Statements for the Year Ended December 31 Sales $300 $200 Income from Sun 25 —
Cost of sales (180) (140)
Other expenses (50) (20)
Net income 95 40 Add: Retained earnings January 1 255 100 Deduct: Dividends (50) (20)
Retained earnings December 31 $300 $120 Balance Sheet at December 31 Cash $ 41 $ 35 Trade receivables—net 60 55 Dividends receivable 8 —
Advance to Sun 25 —
Inventories 125 35 Plant assets—net 300 175 Investment in Sun 191 —
Total assets $750 $300 Accounts payable $ 50 $ 45 Dividends payable — 10 Advance from Pam — 25 Capital stock 400 100 Retained earnings 300 120 Total equities $750 $300 ADDITIONAL INFORMATION