7. Paulee Corporation paid $24,800 for an 80% interest in Sergio Corporation on January 1, 2013, at which time Sergio's stockholders' equity consisted of $15,000 of Common Stock and $6,000 of Retained Earnings. The fair values of Sergio Corporation's assets and liabilities were identical to recorded book values when Paulee acquired its 80% interest.

Sergio Corporation reported net income of $4,000 and paid dividends of $2,000 during 2013.

Paulee Corporation sold inventory items to Sergio during 2013 and 2014 as follows:

2013 2014

Paulee's sales to Sergio $5,000 $6,000

Paulee's cost of sales to Sergio 3,000 3,500

Unrealized profit at year-end 1,000 1,500

At December 31, 2014, the accounts payable of Sergio include $1,500 owed to Paulee for inventory purchases.

Required:

Financial statements of Paulee and Sergio appear in the first two columns of the partially completed working papers. Complete the consolidation working papers for Paulee Corporation and Subsidiary for the year ended December 31, 2014.