Sal 30 (40) 100 150 5 P 7-6 Workpapers (constructive retirement of bonds, intercompany sales) Financial statements for Par Corporation and its 75 percent-owned subsidiary, Sal Corporation, for 2012 are summarized as follows (in thousands): Par Combined Income and Retained Earnings Statement for the Year Ended December 31, 2012 Sales S630 S500 Gain on plant Income from Sal 52 Cost of goods sold (350) (300) Depreciation expense (76) Interest expense (20) Other expenses (46) (60) Net income 220 Add: Beginning retained earnings 100 Deduct: Dividends (160) (80) Retained earnings December 31 $210 S120 Balance Sheet at December 31, 2012 Cash $ 27 S81 Bond interest receivable Other receivables-net 40 30 Inventories 80 50 Land 90 70 Buildings-net 150 180 Equipment-net 140 90 Investment in Sal 343 Investment in Par bonds 94 Total assets S870 S600 Accounts payable $50 S80 Bond interest payable 10 10% bonds payable 200 Common stock 400 400 Retained earnings 210 120 Total equities 5870 $600 Par Corporation acquired its interest in Sal at book value during 2009, when the fair values of Sal's assets and liabilities were equal to recorded book values. ADDITIONAL INFORMATION 1. Par uses the equity method for its investment in Sal. 2. Intercompany sales of merchandise between the two affiliates totalled 550,000 during 2012. All inter- company balances have been paid except for $10,000 in transit from Salto Par at December 31, 2012. 3. Unrealized profits in Sal's inventories of merchandise acquired from Pat were $12.000 at December 31. 2011, and $15,000 at December 31, 2012. 4. Sal sold equipment with a six-year remaining useful life to Par on January 2, 2010, at a gain of $24,000. The equipment is still in use by Pat: 5. Par sold a plant to Sal on July 1, 2012. The land was sold at a gain of S10,000 and the building, which had a remaining useful life of 10 years, at a gain of S20,000 6. Sal purchased S100,000 par of Par 10 percent bonds in the open market for $94,000 plus $5,000 accrued interest on December 31, 2012. Interest is paid semiannually on January 1 and July 1, and the bonds mature on January 1, 2017 244 CHAPTER 7 REQUIRED: Prepare a consolidation workpaper for Par Corporation and Subsidiary for the year ended December 31, 2012