P4-9 Workpapers (year of acquisition, excess recorded for inventory, equipment and patents, intercompany transactions)

Pam Corporation acquired 80 percent of Sun Corporation’s common stock on January 1, 2016, for

$840,000 cash. The stockholders’ equity of Sun at this time consisted of $600,000 capital stock and

$200,000 retained earnings. The difference between the fair value of Sun and the underlying equity acquired in Sun was due to a $50,000 undervaluation of Sun’s inventory, a $100,000 undervaluation of Sun’s equipment, and unrecorded patents with a 20-year remaining life.
The undervalued inventory was sold by Sun during 2016, and the undervalued equipment had a remaining useful life of five years. Straight-line depreciation is used.
Sun owed Pam $16,000 on accounts payable at December 31, 2016.
The separate financial statements of Pam and Sun Corporations at and for the year ended December 31, 2016, are as follows (in thousands):
Pam Sun Combined Income and Retained Earnings Statements for the Year Ended December 31 Sales $ 800 $ 440 Income from Sun 68 —
Cost of sales (320) (160)
Depreciation expense (160) (80)
Other expenses (102) (40)
Net income 286 160 Add: Retained earnings January 1 300 200 Deduct: Dividends (160) (80)
Retained earnings December 31 $ 426 $ 280 Balance Sheet at December 31 Cash $ 118 $ 120 Trade receivables—net 112 160 Dividends receivable 32 —
Inventories 160 120 Land 60 120 Buildings—net 260 280 Equipment—net 800 400 Investment in Sun 844 —
Total assets $2,386 $1,200 Accounts payable $ 160 $200 Dividends payable 400 40 Other liabilities 200 80 Capital stock, $10 par 1,200 600 Retained earnings 426 280 Total equities $2,386 $1,200 REQuIRED:Prepare consolidation workpapers for Pam Corporation and Subsidiary at and for the year ended December 31, 2016.