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Question $3$: On January $1,2014,$ Portland Company acquired all of Salem Company's voting stock for $$14,000,000$ 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$)$ $$10,000,000$ $ $6,000,000$

Identifi able intangibles $(5$ years, straight$-$line$)4,000,000$

Salem's total shareholders' equity at January $1,2014,$ was $$3,000,000.$ It is now December $31,2017($four years later$).$ Salem's retained earnings reflect the accumulation of net income less dividends; there have been no other changes in its retained earnings. Salem does not report any other comprehensive income. Cumulative goodwill impairment to the beginning of $2017$ is $$500,000.$ Goodwill impairment for $2017$ is $$250,000.$ 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 $$3,000,000$

Plant assets, net $24,000,000$

Liabilities $(8,500,000)$

Capital stock $(3,000,000)$

Retained earnings, January $1(13,000,000)$

Sales revenue $(11,000,000)$

Cost of goods sold $5,500,000$

Operating expenses $3,000,000$

$ $0$

What is $2017$ equity in net income of Salem, reported on Portland's books using the complete equity method?

$$1,650,000$

$$1,900,000$

$$1,250,000$

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