Damon, Inc., acquired 25% of Jolie Enterprises for $8,000,000 onOctober 1, 2018. The total fair value of Jolie's identifiable netassets was $27,000,000 on that date, and the total book value ofthose net assets was $23,000,000.
The difference between fair value and book value is attributedto equipment that has a remaining useful life of 4 years. During2018 Jolie recognized net income of $2,000,000 and paid dividendsof $1,200,000 ($300,000 per quarter). Jolie had a fair value of$36,000,000 as of December 31, 2018.
Required: Assume Damon accounts for the Jolieinvestment under the equity method. Indicate the total effect ofthe Jolie investment on Damon's:
1) Net income for 2018.
2) The balance in Damon's investment account on December 31,2018.
