Reference no: EM132820806

During the start of the current year, Meta Inc. bought 40% of the ordinary shares of another entity for $3,500,000 when the net assets acquired amounted to $7,000,000. At the acquisition date, the carrying amounts of the identifiable assets and liabilities of the investee were equal to their fair value, except for equipment for which has a fair value of $1,500,000 greater than carrying amount and inventory whose fair value was $500,000 greater than cost. The equipment has a remaining life of four years and the inventory was all sold during the current year. The investee reported that the net income is $4,000,000 and paid $1,000,000 dividends during the current year.

Problem a. What amount is the investment income for the current year?

Problem b. What amount is the balance of "investment in associate" at the current year-end?