On January 2, Year 4, Poplar Ltd. purchased 80% of the outstanding shares of Spruce Ltd. for $2,050,000. At that date, Spruce had common shares of $500,000 and retained earnings of $1,300,000 and accumulated depreciation of $650,000. 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 $762,500, were not recognized on Spruce's separateentity balance sheet, and had an useful life of10 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 ofthe two companies were as follows: Fbplar Spruce Cash $ 1,050,000 $ 505,000 Accounts receivable 2,100,000 406,000 Inventory 3,150,000 2,056,000 Plant and equipment 14,700,000 2,950,000 Investment in Spruce (cost) 2,050,000 ' Investment in bonds 4' 493,000 Cost of goods sold 2,450,000 858,500 Other expenses 96?,000 305,000 Interest expense 43,000 4' Income tax expense 6?9,000 400,000 Dividends 600,000 250,000 $2?,?89,000 $8,223,500 Accounts payable $ 2,542,000 $2,528,500 Accumulated depreciation: plant and equipment 4,080,500 1,050,000 Bonds payable 500,000 ' Prendum on bonds payable 8,000 ' Common shares 4,500,000 500,000 Retained earnings, January 1 11,008,500 2,068,500 Sales 4,950,000 2,050,000 Dividend revenue 200,000 ' Interest revenue 26,500 $2?,?89,000 $8,223,500 Additional Information - The Year 7 net incomes ofthe two companies are as follows: Poplar Ltd. $ 1, 000, 000 Spruce Ltd. 524, 000 [ - The mineral rights owned by Spruce have increased in value since the date of acquisition and were worth $929,500 at December 31, Year 7. . On January 2, Year 5, Poplar sold equipment to Spruce for $550,000. The equipment had a carrying amount of $440,000 at the time of the sale. The remaining useful life of the equipment was 5 years. - The Year 7 opening inventories of Poplar contained $505,000 of merchandise purchased from Spruce during Year 6. Spruce had recorded a gross profit of $202,000 on this merchandise. During Year 7, Spruce's sales to Poplar totalled $1,005,000. These sales were made at a gross profit rate of 35%. Poplar's ending inventory contains $305,000 of merchandise purchased from Spruce. Other expenses include depreciation expense. Tax allocation will be at a rate of 40%