Pay Corporation acquired a 75 percent interest in Sue Corporation for $600,000 on January 1, 2011, when Sue's equity consisted of $300,000 capital stock and $100,000 retained earnings. The fair values of Sue's assets and liabilities were equal to book values on this date, and goodwill is not amortized. Pay uses the equity method of accounting for Sue. During 2011, Pay sold inventory items to Sue for $160,000, and at December 31, 2011, Sue's inventory included items on which there were $20,000 unrealized profits. During 2012, Pay sold inventory items to Sue for $260,000, and at December 31, 2012, Sue's inventory included items on which there were $40,000 unrealized profits. On December 31, 2012, Sue owed Pay $30,000 on account for merchandise purchases. The financial statements of Pay and Sue Corporations at and for the year ended December 31, 2012, are summarized as follows (in thousands):

REQUIRED: Prepare consolidation workpapers for Pay Corporation and Subsidiary for the year ended December 31,2012.

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Pay Sue Combined Income and Retained Earnings Statements for the Year Ended December 31, 2012 Sales Income from Sue Cost of sales $ 1.200 $ 800 205 (420) (540) (290) 575 Operating expenses (80) 300 Net income Beginning retained earnings Deduct: Dividends Retained earnings December 31, 2012 365 180 (100) (300) $ 640 380 Balance Sheet at December 31, 2012 Cash Accounts receivable $ 170 330 60 200 Dividends receivable Inventories Land Buildings-net Equipment-net 30 120 160 160 460 100 200 400 280 Investment in Sue 770 $2,440 $1,000 Total assets $ 450 $ 200 Accounts payable Dividends payable 140 40 Other liabilities Common stock, $10 par Retained carnings Total equities 310 900 80 300 640 $2.440 380 $1,000