Pas Corporation acquired 80 percent of Sel Corporation's common stock on January 1, 2011, for $420,000 cash. The stockholders' equity of Sel at this time consisted of $300,000 capital stock and $100,000 retained earnings. The difference between the fair value of Sel and the underlying equity acquired in Sel was due to a $25,000 undervaluation of Sel's inventory, a $50,000 undervaluation of Sel's equipment, and unrecorded patents with a 20-year remaining life.

The undervalued inventory was sold by Sel during 2011, and the undervalued equipment had a remaining useful life of five years. Straight-line depreciation is used.

Sel owed Pas $8,000 on accounts payable at December 31, 2011.

The separate financial statements of Pas and Sel Corporations at and for the year ended December 31, 2011, are as follows (in thousands):

REQUIRED
Prepare consolidation workpapers for Pas Corporation and Subsidiary at and for the year ended December 31, 2011.

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Pas Sel Combined Income and Retained Earnings Statements for the Year Ended December 31 $220 Income from Sel Cost of sales Depreciation expense Other expenses 34 (160) (80) (80) (40) (5) 20) 143 150 Net income 80 100 (80)(40) S140 Add: Retained earnings January 1 Deduct: Dividends Retained earnings December 31 $213 Balance Sheet at December 31 Cash Trade receivables-net Dividends receivable Inventories $ 59 16 30 $ 60 80 60 60 140 200 Buildings-net Equipment net Investment in Sel 130 Total assets 1,193 $600 Accounts payable Dividends payable Other liabilities Capital stock, $10 par Retained earnings $ 80 200 100 $100 20 213 $1.193 60 140 $600 Total equities