On July 1, 2013, Fatou SA sells equipment to Baba SA, its 75 percent-owned subsidiary, for $6,000,000. The equipment has a book value of $4,500,000 at this date. Baba SA depreciates the equipment by using sum-of-the year method in 5 years. Baba keeps the equipment until it is fully depreciated. Assume the book value of Baba SA’s net assets is equal to fair value at the date of acquisition. Baba SA reports net income of $2,200,000 in 2013 and $2,400,000 in 2014.

REQUIRED

1. Determine income from Baba SA in 2013.

2. Determine income from Baba SA in 2014.