On January 1, 2020, Hartman, Inc. acquired 80 percent of the outstanding voting stock of Gunderson Company in exchange for $1,200,000 cash. At that time, although Gunderson's book value was $925,000, Hartman assessed Gunderson's total business fair value at $1,500,000. Since that time, Gunderson has neither issued nor reacquired any shares of its own stock. The book values of Gunderson's individual assets and liabilities approximated their acquisition-date fair values except for the patent account, which was undervalued by $350,000. The under-valued patents had a 5-year remaining life at the acquisition date. Any remaining excess fair value was attributed to goodwill. No goodwill impairments have occurred Gunderson regularly sells inventory to Hartman. Below are details of the intra-entity inventory sales for the past three years: Year Intra-Entity Sales Intra-Entity Ending Inventory 2020 $125,000 at Transfer Price $80,000 Gross Profit Rate on Intra- Entity Inventory Transfers 25% 2021 220,000 125,000 28% 2022 300,000 160,000 25% 2 At December 31, 2022, Hartman owes Gunderson $15,000 for inventory acquired during the period 3 Separate financial statements for these two companies as of December 31, 2022, follow: 4 Hartman Gunderson 5 Income Statement 6 Revenues (1,740,000.00) (950,000.00) 7 Cost of goods sold 820,000.00 500,000.00 28 Operating expenses 344,000.00 220,000.00 Equity in earnings of (124,000.00) 29 Gunderson 30 Net income (700,000.00) (230,000.00) Statement of Retained 31 Earnings