Mercedes Company paid $20,000,000 to acquire 100% of the outstanding common stock of Benz Incorporated on January 1, 2018. The book value of Benz's net assets on the date of acquisition was $17,000,000. Benz's buildings were undervalued by $1,500,000 as of January 1, 2018; the buildings had a ten-year remaining life as of the date of acquisition. There are no other book-to-fair value differences for the other assets and liabilities of Benz. Mercedes retained earnings as of January 1, 2018 was $5,750,000, while Benz reported retained earnings of $3,175,000. Mercedes net income was $1,750,000 during 2018 and was $2,035,000 during 2019; the 2018 and 2019 net income amounts did not include any amounts pertaining to the Benz investment. Benz's retained earnings increased $1,050,000 from
January 1, 2018 to December 31, 2019 even though Benz declared $225,000 of dividends during that two-year period.Required:Determine the December 31, 2019 consolidated retained earnings balance.
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| Consolidated retained earnings as of January 1, 2018 | $ | 5,750,000 | |||
| Mercedes' net income for 2018 and 2019 | 3,785,000 | ||||
| Benz's net income for 2018 and 2019 | 1,275,000 | (1) | |||
| Amortization of building differential | (300,000 | ) | (2) | ||
| Consolidated retained earnings as of December 31, 2019 | $ | 10,510,000 | |||
(2) $1,500,000/10 years equals $150,000 of amortization per year; two years have passed since the acquisition took place.
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