11 P7-6 Workpapers (constructive retirement of bonds, Intercompany sales) Financial statements for Pop Corporation and its 75 percent-owned subsidiary, Son Corporation, for 2017 are summarized as follows (in thousands): Pop Son Combined Income and Retained Earnings Statement for the Year Ended December 31, 2017 $1,260 $1,000 Sales 60 Gain on plant Income from Son 104 (700) (600) Cost of goods sold (152) (80) Depreciation expense Interest expense (40) (92) (120) Other expenses 440 200 Net income 300 200 Add: Beginning retained earnings Deduct: Dividends (320) (160) Retained earnings December 31 $ 420 $ 240 Balance Sheet at December 31, 2017 Cash $ 54 $ 162 Bond interest receivable 10 Other receivables-net 80 60 Inventories 160 100 Land 180 140 Buildings-net 300 360 Equipment--net 280 180 Investment in Son 686 Investment in Pop bonds 188 Total assets $1,740 $1,200 Accounts payable $ 100 $ 160 Bond interest payable 20 10% bonds payable 400 Common stock Retained earnings 800 800 420 Total equities $1,740 $1,200 240 Pop Corporation acquired its interest in Son at book value during 2014, when the fair values of Son's assets and liabilities were equal to recorded book values. ADDITIONAL INFORMATION 1. Pop uses the equity method for its investment in Son. 2. Intercompany sales of merchandise between the two affiliates totalled $100,000 during 2017. All intercom- pany balances have been paid except for $20,000 in transit from Son to Pop at December 31, 2017. 3. Unrealized profits in Son's inventories of merchandise acquired from Pop were $24,000 at December 31, 2016, and $30,000 at December 31, 2017. 4. Son sold equipment with a six-year remaining useful life to Pop on January 2, 2015, at a gain of $48,000. a The equipment is still in use by Pop. 5. Pop sold a plant to Son on July 1, 2017. The land was sold at a gain of $20,000 and the building, which had a remaining useful life of 10 years, at a gain of $40,000. 6. Son purchased $200,000 par of Pop's 10 percent bonds in the open market for $188,000 plus $10,000 accrued interest on December 31, 2017. Interest is paid semiannually on January 1 and July 1, and the bonds mature on January 1, 2022. REQUIRED: Prepare a consolidation workpaper for Pop Corporation and Subsidiary for the year ended December 31, 2017