Question 2. 68 marks On January 1, Year 5, PAD purchased 80% of the common shares of SBC for $4,500,000. On that date, SBC had common shares of $1,250,000 and retained earnings of $3,000,000, and fair values were equal to carrying values for all its net assets except inventory that was overvalued $60,000, property, plant and equipment that was undervalued $120,000 (remaining useful life of 10 years), and note payable undervalued 5,000 (5 years to maturity) on SBC's books. The financial statements for PAD and SBC for the year ended December 31 , Year 8 were as follows: Balance Sheets December 31, Year 8 PAD SBC Cash $ 680,000 $ 435,000 Accounts receivable 1,505,000 1,005,000 Note receivable 50,000 20,000 Inventory 2 ,800 ,000 1 ,790 ,000 Property, plant and equipment 4,676,000 3,500,000 Accumulated depreciation 1,000,000 500,000 Investment in SBC 4 500 000 Total assets M M Current liabilities $ 400,000 $ 255,000 Notes payable 5,251,000 1,185,000 Common shares 2,000,000 1,250,000 Retained earnings 5 560 000 3 560 000 Total $ 13,211,000 $ 6,250,000