Workpapers and financial statements in year of acquisition Peterson Corporation acquired 70 percent of the outstanding voting stock of Smith Corporation for $91,000 cash on January 1, 2011, when Smiths stockholders equity was $130,000. All the assets and liabilities of Smith were stated at fair values (equal to book values) when Peterson acquired its 70 percent interest. Financial statements of the two corporations at and for the year ended December 31, 2011, are summarized as follows (in thousands): Combined Income and Retained Earnings Statements for the Year Ended December 31 Peterson Smith Sales $620 $200 Income from Smith 21 0 Cost of Goods Sold -400 -130 Operating expenses -154 -40 Net income $87 $30 Add: Retained earnings January 1 130 22 Deduct: Dividends -60 -20 Retained earnings December 31 $157 $32 Balance Sheet at December 31 Cash $91 $30 Receivablesnet 120 60 Inventories 48 40 Plant and equipmentnet 240 70 Investment in Smith 98 0 Total assets $597 $200 Accounts payable $60 $36 Other liabilities 40 24 Capital stock, $10 par 300 100 Other paid-in capital 40 8 Retained earnings 157 32 Total equities $597 $200 REQUIRED 1. Prepare consolidation workpapers for Pal Corporation and Subsidiary for 2011. 2. Prepare a consolidated income statement and a consolidated balance sheet for Pal Corporation and Subsidiary