P7-3 Workpapers (constructive retirement of bonds, Intercompany sales) Financial statements for Pam Corporation and its 75 percent-owned subsidiary, Sun Corporation, for 2016 are summarized as follows (in thousands): Pam Sun $2,520 $2,000 40 (1.200) (160) 80 208 (1,400) (304) (80) (184) 880 600 (640 840 (240) 400 400 (320 $ 480 $ 108 Combined Income and Retained Earnings Statement for the Year Ended December 31, 2016 Sales Gain on land Gain on building Income from Sun Cost of goods sold Depreciation expense Interest expense Other expenses Net income Add: Retained earnings, January 1 Deduct: Dividends Retained earnings, December 31 Balance Sheet at December 31, 2016 Cash Bond interest receivable Other receivables-net Inventories Land Buildings--net Equipment-net Investment in Sun Investment in Pam Bonds Total assets Accounts payable Bond interest payable 10% bonds payable Common stock Retained earnings Total equities 160 320 360 600 560 1,372 $ 324 20 120 200 280 720 360 $3.480 $ 200 40 376 $2.400 $ 320 800 1,600 840 $3,480 1,600 480 $2.400 Pam acquired its interest in Sun at book value during 2013, when the fair values of Sun's assets T limiitin on coal to their recorded book values. pur De lin B 1 ADDITIONAL INFORMATION 1. Pam uses the equity method for its investment in Sun 2. Intercompany merchandise sales totalled $200,000 during 2016. All intercompany balances have been paid except for $40,000 in transit at December 31, 2016. 3. Unrealized profits in Sun's inventory of merchandise purchased from Pam were $48,000 on December 31, 2015, and $60,000 on December 31, 2016. 4. Sun sold equipment with a six-year remaining life to Pam on January 3, 2014, at a gain of $96,000. Pam still uses the equipment in its operations. 5. Pam sold land to Sun on July 1, 2016, at a gain of $40,000 6. Pam sold a building to Sun on July 1, 2016, at again of $80,000. The building has a 10-year remaining life and is still used by Sun. 7. Sun purchased $400,000 par value of Pam's 10 percent bonds in the open market for $376,000 plus $20,000 accrued interest on December 31, 2016. Interest is paid semiannually on January 1 and July 1. The bonds mature on December 31, 2021. REQUIRED: Prepare consolidation workpapers for Pam and Subsidiary for the year ended December 31, 2016. a