Pal Corporation acquired a 90 percent interest in Sor Corporation on January 1, 2011, for $540,000, at which time Sor's capital stock and retained earnings were $300,000 and $180,000, 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 $120,000 during 2011 and $144,000 during 2012. Sor's inventories at December 31, 2011 and 2012, included unrealized profits of $20,000 and $24,000, respectively.
2. On July 1, 2011, Pal sold machinery with a book value of $56,000 to Sor for $70,000. 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 $30,000 to Sor for $40,000.
4. Pal's accounts receivable on December 31, 2012, includes $20,000 due from Sor.
5. Pal uses the equity method for its 90 percent 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 Income from Sor Gain on land Cost of sales Operating expenses $ 900 80 10 (400) $380 Net income Add: Retained earnings January 1 Less: Dividends (200) 100 (40) $300 Retained earnings, December 31 Balance Sheet at December 31, 2012 Accounts receivable 468 $ 266 360 $28 200 Dividends receivable 120 200 72 Buildings-net Machinery-net Investment in Sor 160 280 660 606 $2.808 $ 400 800 $100 40 Accounts payable Dividends payable Other liabilities Capital stock Retained earnings 280 1,600 468 300 $800