On January 2, Year 4, Poplar Ltd. purchased 80% of the outstanding shares of Spruce Ltd. for $1,970,000. At that date, Spruce had common shares of $500,000 and retained earnings of $1,220,000 and accumulated depreciation of $570,000. 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 $742,500, were not recognized on Spruces 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 $ 970,000 $ 513,000 Accounts receivable 1,940,000 326,000 Inventory 2,910,000 1,976,000 Plant and equipment 13,580,000 2,870,000 Investment in Spruce (cost) 1,970,000 Investment in bonds 501,000 Cost of goods sold 2,370,000 872,100 Other expenses 969,000 313,000 Interest expense 45,000 Income tax expense 710,600 320,000 Dividends 600,000 250,000 $ 26,064,600 $ 7,941,100 Accounts payable $ 2,462,000 $ 2,448,500 Accumulated depreciation: plant and equipment 3,952,200 970,000 Bonds payable 500,000 Premium on bonds payable 8,000 Common shares 4,500,000 500,000 Retained earnings, January 1 9,572,400 2,018,100 Sales 4,870,000 1,970,000 Dividend revenue 200,000 Interest revenue 34,500 $ 26,064,600 $ 7,941,100 Additional Information The Year 7 net incomes of the two companies are as follows: Poplar Ltd. $ 946,800 Spruce Ltd. 528,000 The mineral rights owned by Spruce have increased in value since the date of acquisition and were worth $936,700 at December 31, Year 7. On January 2, Year 5, Poplar sold equipment to Spruce for $480,000. The equipment had a carrying amount of $384,000 at the time of the sale. The remaining useful life of the equipment was 5 years. The Year 7 opening inventories of Poplar contained $513,000 of merchandise purchased from Spruce during Year 6. Spruce had recorded a gross profit of $205,200 on this merchandise. During Year 7, Spruces sales to Poplar totalled $1,013,000. These sales were made at a gross profit rate of 35%. Poplars ending inventory contains $313,000 of merchandise purchased from Spruce. Other expenses include depreciation expense. Tax allocation will be at a rate of 40%. Required: (a) Prepare the following consolidated financial statements for Year 7: (i) Income statement (Input all values as positive numbers.) (ii) Retained earnings statement (Input all values as positive numbers. Omit $ sign in your response.) Poplar Ltd. Consolidated Statement of Retained Earnings Year 7 (Click to select) $ (Click to select) (Click to select) (Click to select) $ (iii) Balance sheet (Amounts to be deducted should be indicated with a minus sign.) (b) Calculate the December 31, Year 7, balance in the account Investment in Spruce if Poplar had used the equity method to account for its investment. (Omit $ sign in your response.) Balance, Dec. 31, Year 7 $ (c) Not available in Connect.