Consolidated workpaper (downstream sales, intercompany receivable/ payable)Pal Corporation...

Consolidated workpaper (downstream sales, intercompany receivable/ payable)

Pal Corporation acquired a 90 percent interest in Sor Corporation on January 1, 2011, for $270,000, at which time Sor’s capital stock and retained earnings were $150,000 and $90,000, respectively. The fair value/book value differential is goodwill. Financial statements for Pal and Sor for 2012 are as follows (in thousands):

ADDITIONAL INFORMATION

1. Pal sold inventory items to Sor for $60,000 during 2011 and $72,000 during 2012. Sor’s inventories at December 31, 2011 and 2012, included unrealized profits of SI 0,000 and $ 12,000, respectively.

2. On July 1, 2011, Pal sold machinery with a book value of $28,000 to Sor for $35,000. The machinery had a useful life of 3.5 years at the time of sale, and straight-line depreciation is used.

3. During 2012, Pal sold land with a book value of $15,000 to Sor for $20,000.

4. Pal’s accounts receivable on December 31, 2012, includes $ 10,000 due from Sor.

5. Pal uses the equity method for its 90% interest in Sor.

REQUIRED: Prepare a consolidation workpaper for Pal Corporation and Subsidiary for the year ended December 31, 2012.