Workpaper (downstream sales, two years)Pal Corporation acquired a 90 percent interest in S...

Workpaper (downstream sales, two years)

Pal Corporation acquired a 90 percent interest in Sto Corporation on January 1, 2011, for $270,000, at which time Sto’s capital stock and retained earnings were $150,000 and $90,000, respectively. The fan-value cost/book value differential is due to a patent with a 10-year amortization period. Financial statements for Pal and Sto for 2012 are as follows (in thousands):

ADDITIONAL INFORMATION

1. Pal sold inventory to Sto for $60,000 during 2011 and $72,000 during 2012; Sto’s inventories at December 31, 2011 and 2012, included unrealized profits of $10,000 and $12,000, respectively.

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

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

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

5. Pal uses the equity method for its 90 percent interest in Sto.

REQUIRED: Prepare a consolidalion workpaper for Pal and Subsidiary for the year ended December 31,