Pan Corporation paid $577,500 cash for a 70 percent interest in Sir Corporation's outstanding common stock on January 2, 2011, when the equity of Sir consisted of $500,000 common stock and $300,000 retained earnings. The excess fair value is due to goodwill.

In December 2011, Sir sold inventory items to Pan at a gross profit of $50,000 (selling price $120,000 and cost $70,000), and all these items were included in Pan's inventory at December 31, 2011.

Sir paid dividends of $50,000 in 2011, and an 80 percent dividends-received deduction is applicable.

A flat 34 percent income tax rate is applicable to both companies.

Separate pretax incomes of Pan and Sir for 2011 are as follows (in thousands):

REQUIRED1. Determine 2011 income tax currently payable and income tax expense for Pan and Sir.2. Calculate Pan's income from Sir for 2011.3. Prepare a consolidated income statement for Pan and Sir for 2011.

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Pan Sir Sales Cost of sales Operating expenses Pretax income $1,000 (550) (250) $ 200 (2,000) (1,500) $ 500 200