Problem $7-5$

$101$

Hanna Corporation owns $80\%$ of the outstanding voting stock of Fellow Inc. At the date of acquisition, Fellow's retained earnings were $$2,100,000.$ On December $31,$ Year $2,$ Hanna Inc. sold equipment to Fellow at its fair value of $$2,000,000$ and recorded a gain of $$500,000.$ The equipment had a remaining useful life of five years on the date of the intercompany transaction. This equipment was still held within the consolidated entity at the end of Year $4.$

At the end of Year $4,$ selected figures from the two companies' financial statements were as follows:

$\backslash$table$[[,$Hanna,Fellow$],[$Equipment$,$$$7,000,000,$$$4,000,000$