Hanna Corporation owns 80% of the outstanding voting stock of Fellow Inc. At the date of acquisition,

Fellow's retained earnings were $2,100,000. On December 31, Year 2, Hanna Inc. sold equipment to Fellow

at its fair value of $2,000,000 and recorded a gain of $500,000. The equipment had a remaining useful life

of five years on the date of the intercompany transaction. This equipment was still held within the

consolidated entity at the end of Year 4.

At the end of Year 4, selected figures from the two companies' financial statements were as follows:

Hanna Fellow

Equipment $7,000,000 $ 4,000,000

Accumulated depreciation 2,700,000 1,450,000

Retained earnings, beginning of year 5,000,000 3,000,000

Depreciation expense 800,000 610,000

Net income 1,500,000 550,000

Dividends declared 500,000 200,000

Hanna uses the cost method to account for its investment in Fellow. Both companies pay income tax at the rate of 40%.

Required:

(a)

Calculate the amount to be reported on the Year 4 consolidated financial statements for the

accounts/items listed above