Padilla Company acquired 80% of the outstanding common stock of Sanchez Company on June 30, 2014 for $388,000. On that date, Sanchez Company had retained earnings of $60,000, and the fair value of its recorded assets and liabilities was equal to the book value. The excess of implied over fair value of the recorded net assets was attributed to an unrecorded manufacturing formula held by Sanchez Company, which had an expected remaining useful life of five years from June 30,2014. Financial date for 2016 are presented below:

On December 31, 2014, Padilla Company sold equipment (with an original cost of $100,000 and accumulated depreciation of $50,000) to Sanchez Company for $160,000. This equipment has since been depreciated at an annual rate of 20% of the purchase price. During 2015, Sanchez Company sold land to Padilla Company at a profit of $19,000.

The inventory of Padilla Company on December 31, 2015, included goods purchased from Sanchez Company on which Sanchez Company recognized profit of $9,000. During 2016, Sanchez Company sold goods to Padilla Company for $375000, of which $60000 was unpaid on December 31, 2016. The December 31, 2016 inventory of Padilla Company included goods acquired from Sanchez Company on which Sanchez Company recognized a profit of $16,000.

Required: Prepare a consolidated financial statements work paper for the year ended December 31, 2016

	Padilla Company	Sanchez Company
Sales	$2,555,500	$1,120,000
Equity in subsidiary income	147,200
Total revenue	2,711,550	1,120,000
Cost of goods sold	1,730,000	690,500
Expenses	654,500	251,000
Total cost and expense	2,384,500	941,500
Net income	327,050	178,500
1/1 retained earnings	591,200	139,500
Net income	327,050	178,500
Dividends declared	(100,000)	(60,000)
12/31 retained earnings	818,250	258,000
Cash	119,500	132,500
Accounts receivable	342,000	125,000
Inventory	362,000	201,000
Other current assets	40,500	13,000
Land	150000
Investment in Sanchez Company	422,400
Property and equipment	825,000	241,000
Accumulated depreciation	(207,000)	(53,500)
Total assets	2,156,250	659,000
Accounts payable	226,249	32,000
Other liabilities	18,751	19,000
Capital stock	1,000,000	300,000
Additional paid-in capital		50,000
Retained earnings	818,250	258,000
Total liabilities and equity	2,156,250	659,000