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Which could be included in belle inc income before tax

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On April 1, Belle Inc. bought 40% of the outstanding ordinary shares of an associate for $4,000,000. On this date, the investee's net assets totaled to $8,000,000 and Belle Inc. can't attribute the excess of cost of the investment over the equity in the investee's net assets to any particular factor. The investee reported net income of $1,000,000 for the current year.

Problem a. How much is the maximum amount which could be included in Belle Inc.'s income before tax to reflect its "equity in earnings of the investee" for the current year?

Problem b. How much is the balance of Investment in Associate at the end of the current year?

Reference no: EM132822198

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