On December 31, 2013, Poplar Inc. purchased 80% of the 600,000 outstanding common shares of Spruce Ltd for $5.4 million in cash. On that date, the shareholders' equity of Spruce totalled $6 million and consisted of $1 million in common shares, $1 million in contributed surplus and $4 million in retained earnings. On December 31, 2013, Spruce had a plot of land with a fair value that was $100,000 greater than its carrying value, equipment (with a remaining life of 6 years) with a fair value that was $120,000 greater than its carrying value and long-term debt maturing on December 31, 2021 with a fair value that was $200,000 greater than its book value. Any remaining purchase discrepancy was allocated to goodwill which was assessed annually for impairment. For the year ended December 31, 2015, the condensed income statements for the two companies were as follows: Sales and other revenue Cost of goods sold Amortization expense Other expenses Income tax expense Net income (loss) Poplar Inc. $12,500,000 Spruce Ltd. 8,000,000 $5,600,000 4,000,000 1,500,000 1,000,000 1,100,000 1,400,000 700,000 (200,000) $ 1,200,000 $ (600,000) At December 31, 2019, the condensed balance sheets of the two companies were as follows: Total assets Liabilities Common shares Contributed surplus Retained earnings Poplar Inc. $ 29,000,000 5,000,000 11,000,000 1,100,000 11,900,000 Spruce Ltd. $ 11,100,000 1,200,000 1,000,000 1,000,000 7,900,000 $ 29,000,000 $ 11,100,000 Other information: 1. Poplar values the noncontrolling interest in its subsidiary based on the market value of the subsidiary's shares immediately following the acquisition. When the markets opened on January 2, 2014, shares of Spruce were trading for $11 per share. 2. Impairment of the controlling interest in the subsidiary's goodwill was $85,000 in 2015 and $170,000 in 2019. Impairment of the noncontrolling interest in goodwill was $15,000 in 2015 and $30,000 in 2019. There was no goodwill impairment recognized in any other year. 3. On July 1, 2018, Spruce sold the land to which the purchase discrepancy related to an unrelated company, recording a profit of $200,000 before income taxes from the sale. 4. On January 1, 2018, Spruce sold a machine to Poplar for $30,000. When Spruce purchased the machine on January 1, 2011 for $80,000, it was estimated that its service life would be ten years with no salvage value. There was no change in the estimated service life or salvage value at the time of the intercompany sale. 5. During 2019, Poplar sold merchandise to Spruce for $100,000, a price that included a gross profit of $40,000. During 2019, half of this merchandise was resold by Spruce and the other half remained in its December 31, 2019, inventories. On December 31, 2018, the inventories of Spruce contained merchandise purchased from Poplar on which Poplar had recorded a gross profit of $25,000. 6. On December 31, 2019, Spruce owed Poplar $100,000. (At the end of 2018, Spruce owed Poplar $50,000.) 7. During 2019, Poplar declared and paid dividends of $300,000 and Spruce declared and paid dividends of $100,000. 8. Poplar accounts for its investment using the cost method. 9. Both companies pay income tax at a marginal rate of 40%. In preparing its consolidated financial statements, Poplar accounts fully for the future income taxes arising from intercompany transactions but does not account for income taxes in its allocation of the purchase discrepancy. Required Other information: 1. Poplar values the noncontrolling interest in its subsidiary based on the market value of the subsidiary's shares immediately following the acquisition. When the markets opened on January 2, 2014, shares of Spruce were trading for $11 per share. 2. Impairment of the controlling interest in the subsidiary's goodwill was $85,000 in 2015 and $170,000 in 2019. Impairment of the noncontrolling interest in goodwill was $15,000 in 2015 and $30,000 in 2019. There was no goodwill impairment recognized in any other year. 3. On July 1, 2018, Spruce sold the land to which the purchase discrepancy related to an unrelated company, recording a profit of $200,000 before income taxes from the sale. 4. On January 1, 2018, Spruce sold a machine to Poplar for $30,000. When Spruce purchased the machine on January 1, 2011 for $80,000, it was estimated that its service life would be ten years with no salvage value. There was no change in the estimated service life or salvage value at the time of the intercompany sale. 5. During 2019, Poplar sold merchandise to Spruce for $100,000, a price that included a gross profit of $40,000. During 2019, half of this merchandise was resold by Spruce and the other half remained in its December 31, 2019, inventories. On December 31, 2018, the inventories of Spruce contained merchandise purchased from Poplar on which Poplar had recorded a gross profit of $25,000. 6. On December 31, 2019, Spruce owed Poplar $100,000. (At the end of 2018, Spruce owed Poplar $50,000.) 7. During 2019, Poplar declared and paid dividends of $300,000 and Spruce declared and paid dividends of $100,000. 8. Poplar accounts for its investment using the cost method. 9. Both companies pay income tax at a marginal rate of 40%. In preparing its consolidated financial statements, Poplar accounts fully for the future income taxes arising from intercompany transactions but does not account for income taxes in its allocation of the purchase discrepancy. Required: (a) Calculate the consolidated net income of Poplar Inc. and its subsidiary Spruce Ltd. for the year ended December 31, 2019. (7 marks) (b) Prepare the condensed consolidated balance sheet of Poplar Inc. and its subsidiary Spruce Ltd. as at December 31, 2019. Show your calculations of consolidated retained earnings and noncontrolling interest.. (18 marks)