P4-7 Workpapers (year of acquisition, excess recorded for inventory, building equipment, and goodwill, intercompany balances)

Pam Corporation acquired a 70 percent interest in Sun Corporation’s outstanding voting common stock on January 1, 2016, for $490,000 cash. The stockholders’ equity of Sun on this date consisted of $500,000 capital stock and $100,000 retained earnings. The difference between the fair value of Sun and the underlying equity acquired in Sun was assigned $5,000 to Sun’s undervalued inventory, $14,000 to undervalued buildings, $21,000 to undervalued equipment, and $60,000 to goodwill.

The undervalued inventory items were sold during 2016, and the undervalued buildings and equipment had remaining useful lives of seven years and three years, respectively. Depreciation is straight line.

At December 31, 2016, Sun’s accounts payable include $10,000 owed to Pam. This $10,000 account payable is due on January 15, 2017. Pam sold equipment with a book value of $15,000 for

$25,000 on June 1, 2016. This is not an intercompany sale transaction. Separate financial statements for Pam and Sun for 2016 are summarized as follows (in thousands):

Pam Sun Combined Income and Retained Earnings Statements for the Year Ended December 31 Sales $ 800 $700 Income from Sun 60.2 —

Gain on equipment 10 —

Cost of sales (300) (400)

Depreciation expense (155) (60)

Other expenses (160) (140)

Net income 255.2 100 Add: Retained earnings January 1 300 100 Deduct: Dividends (200) (50)

Retained earnings December 31 $ 355.2 $150 Balance Sheet at December 31 Cash $ 96 $ 60 Accounts receivable—net 100 70 Dividends receivable 14 —

Inventories 150 100 Other current assets 70 30 Land 50 100 Buildings—net 140 160 Equipment—net 570 330 Investment in Sun 515.2 —

Total assets $1,705.2 $850 Accounts payable $ 200 $ 85 Dividends payable 100 20 Other liabilities 50 95 Capital stock, $10 par 1,000 500 Retained earnings 355.2 150 Total equities $1,705.2 $850 REQuIRED:Prepare consolidation workpapers for Pam Corporation and Sun for the year ended December 31, 2016. Use an unamortized excess account.