Question
On January 2, Year 4, Poplar Ltd. purchased 80% of the outstanding shares of Spruce Ltd. for $1,900,000. At that date, Spruce had common shares
On January 2, Year 4, Poplar Ltd. purchased 80% of the outstanding shares of Spruce Ltd. for $1,900,000. At that date, Spruce had common shares of $500,000 and retained earnings of $1,150,000 and accumulated depreciation of $500,000. 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 $725,000, 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:
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