P6-8 Consolidation workpaper (upstream sales)

Financial statements for Pam and Sun Corporations for 2016 are as follows (in thousands):

Pam Sun Combined Income and Retained Earnings Statement for the Year Ended December 31, 2016 Sales $210 $130 Income from Sun 34.4 —

Gain on sale of land — 10 Depreciation expense (40) (30)

Other expenses (110) (60)

Net income 94.4 50 Add: Beginning retained earnings 145.4 50 Deduct: Dividends (30) —

Retained earnings December 31 $209.8 $100 Balance Sheet at December 31, 2016 Current assets $200 $170 Plant assets 550 350 Accumulated depreciation (120) (70)

Investment in Sun 329.8 —

Total assets $959.8 $450 Current liabilities $150 $ 50 Capital stock 600 300 Retained earnings 209.8 100 Total equities $959.8 $450 ADDITIONAL INFORMATION 1. Pam acquired an 80 percent interest in Sun on January 2, 2014, for $290,000, when Sun’s stockholders’

equity consisted of $300,000 capital stock and no retained earnings. The excess of investment fair value over book value of the net assets acquired related 50 percent to undervalued inventories (subsequently sold in 2014) and 50 percent to goodwill.

2. Sun sold equipment to Pam for $25,000 on January 1, 2015, when the equipment had a book value of

$10,000 and a five-year remaining useful life (included in plant assets).

3. During 2016, Sun sold land to Pam at a profit of $10,000 (included in plant assets).

4. Pam uses the equity method to account for its investment in Sun.

REQuIRED: Prepare a consolidation workpaper for Pam and Subsidiary for the year ended December 31, 2016.