Question $2$: On January $1,2014,$ Portland Company acquired all of Salem Company's voting stock for $$18,000,000$ in cash. Some of Salem's assets and liabilities at the date of purchase had fair values that differed from reported values, as follows:

Book value Fair value

Buildings and equipment, net $(20$ years, straight$-$line$)$ $$12,000,000$ $ $3,000,000$

Identifiable intangibles $(5$ years, straight$-$line$)012,500,000$

Salem's total shareholders' equity at January $1,2014,$ was $$5,000,000.$ It is now December $31,2017($four years later$).$ Salem's retained earnings reflect the accumulation of net income less dividends; there have been no other changes in its retained earnings. Salem does not report any other comprehensive income. Cumulative goodwill impairment to the beginning of $2017$ is $$1,500,000.$ Goodwill impairment for $2017$ is $$500,000.$ Portland uses the complete equity method to account for its investment. The December $31,2017,$ trial balance for Salem appears below.

Salem Dr $($Cr$)$

Current assets $$3,500,000$

Plant assets, net $27,000,000$

Liabilities $(11,500,000)$

Capital stock $(2,000,000)$

Retained earnings, January $1(14,000,000)$

Sales revenue $(15,000,000)$

Cost of goods sold $7,500,000$

Operating expense $4,500,000$

$ $0$

On the $2017$ consolidation working paper, eliminating entry $($O$)$ increases consolidated operating expenses by

$$3,500,000$

$$2,550,000$

$$3,050,000$

$$3,000,000$