On January $2,$ Year $4,$ Poplar Ltd$.$ purchased $80\%$ of the outstanding shares of Spruce Ltd$.$ for $$2,020,000.$ At that date, Spruce had common shares of $$500,000$ and retained earnings of $$1,270,000$ and accumulated depreciation of $$620,000.$ Poplar acquired the Spruce shares to obtain control of mineral rights owned by Spruce. At the date of acquisition, these mineral rights were valued at $$755,000,$ were not recognized on Spruce$$s separate$-$entity balance sheet, and had an useful life of $10$ years. Except for the mineral rights, the carrying amount of the recorded assets and liabilities of Spruce were equal to their fair values. On December $31,$ Year $7,$ the trial balances of the two companies were as follows:

Poplar Spruce

Cash $ $1,020,000$ $ $502,000$

Accounts receivable $2,040,000378,000$

Inventory $3,060,0002,026,000$

Plant and equipment $14,280,0002,920,000$

Investment in Spruce $($cost$)2,020,000$

Investment in bonds $242,000$

Cost of goods sold $2,420,000853,400$

Other expenses $967,000302,000$

Interest expense $37,000$

Income tax expense $631,600370,000$

Dividends $600,000250,000$

$ $27,075,600$ $ $7,843,400$

Accounts payable $ $2,508,000$ $ $2,498,500$

Accumulated depreciation: plant and equipment $4,032,2001,020,000$

Bonds payable $500,000$

Premium on bonds payable $12,000$

Common shares $4,500,000500,000$

Retained earnings, January $110,403,4001,781,400$

Sales $4,920,0002,021,500$

Dividend revenue $200,000$

Interest revenue $22,000$

$ $27,075,600$ $ $7,843,400$

Additional Information

The Year $7$ net incomes of the two companies are as follows:

Poplar Ltd$.$ $ $1,064,400$

Spruce Ltd$.518,100$

The mineral rights owned by Spruce have increased in value since the date of acquisition and were worth $$926,800$ at December $31,$ Year $7.$

On January $2,$ Year $5,$ Poplar sold equipment to Spruce for $$520,000.$ The equipment had a carrying amount of $$416,000$ at the time of the sale. The remaining useful life of the equipment was $5$ years.

The Year $7$ opening inventories of Poplar contained $$502,000$ of merchandise purchased from Spruce during Year $6.$ Spruce had recorded a gross profit of $$200,800$ on this merchandise.

During Year $7,$ Spruce$$s sales to Poplar totalled $$1,002,000.$ These sales were made at a gross profit rate of $35\%.$

Poplar$$s ending inventory contains $$302,000$ of merchandise purchased from Spruce.

On January $2,$ Year $5,$ Poplar issued $8\%,7$ year bonds with a face value of $$500,000$ for $$521,000.$ Interest is paid annually on December $31.$ On January $2,$ Year $6,$ Spruce purchased one$-$half of this issue on the open market at a cost of $$238,000.$

Other expenses include depreciation expense.

Tax allocation will be at a rate of $40\%.$