cash. The stockholders' equity of Sel at this time consisted of $$150,000$ capital stock and

$$50,(0)(0)$ retained earnings. The difference between the fair value of Sel and the underlying equity

acyurred in Sel was due to a $$12,500$ undervaluation of Sel's inventory, a $$25,000$ undervaluation of

Sel's equipment, and goodwill.

The undervalued inventory items were sold by Sel during $2011,$ and the undervalued equip$-$

ment had a remaining useful life of five years. Straight$-$line depreciation is used.

Sel owed Pik $$4,000$ on accounts payable at December $31,2011.$

The separate financial statements of Pik and Sel Corporations at and for the year ended

December $31,2011,$ are as follows $($in thousands$)$:

Combined Income and Retained Earnings

Statemenis for the Year Ended December $31$

Sales

lncome from Sel

Cost of sales

Depreciation expense

Other expenses

Net income

Add: Retained earnings January $1$

Deduct: Dividends

Retained earnings December $31$

Balance Sheet at December $31$

Cash

Trade receivables$-$net

Dividends receivable

Inventories

Land

Buildings $-$ net

Eyuipment$-$net

Investment in Sel

Total assets