Sun is a 90 percent-owned subsidiary of Pam Corporation, acquired at book value several years ago. Comparative separate-company income statements for the affiliates for 2016 are as follows:

On January 5, 2016, Pam sold a building with a 10-year remaining useful life to Sun at a gain of $15,000. Sun paid dividends of $50,000 during 2016.
REQUIRED
1. Reconstruct the journal entries made by Pam during 2016 to account for its investment in Sun. Explanations of the journal entries are required.
2. Prepare a consolidated income statement for Pam Corporation and Subsidiary for 2016.

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Pam Corporation Sun Corporation $350,000 $750,000 Income from Sun Gain on building 54,000 15,000 350,000 200,000 75,000 275,000 $ 75,000 Income credits Cost of sales Operating expenses 500,000 150,000 Income debits Net income $169,000