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 INFORMATION1. 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 $10,000 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.

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Pal Sor Combined Income and Retained Earnings Statement for the Year Ended December 31, 2012 Sales $ 450 $190 Income from Sor Gain on land Cost of sales 40 5 (100) (40) (200) (113) 182 202 Operating expenses Net income Add: Retained earnings January I 50 120 Less: Dividends (150) $ 234 (20) Retained earnings, December 31 $150 Balance Sheet at December 31, 2012 Cash $ 133 $ 14 Accounts receivable Dividends receivable 180 18 100 Inventories Land 60 100 36 30 Buildings-net Machinery-net 280 330 80 140 Investment in Sor 303 $1.404 $ 200 30 $400 Accounts payable Dividends payable S 50 20 Other liabilities 140 30 150 150 Capital stock Retained earnings 800 234 $1,404 $400