Damon, Inc., acquired 25% of Jolie Enterprises for $8,000,000 on October 1, 2018. The total fair...

Damon, Inc., acquired 25% of Jolie Enterprises for $8,000,000 on October 1, 2018. The total fair value of Jolie's identifiable net assets was $27,000,000 on that date, and the total book value of those net assets was $23,000,000.

The difference between fair value and book value is attributed to equipment that has a remaining useful life of 4 years. During 2018 Jolie recognized net income of $2,000,000 and paid dividends of $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 Jolie investment under the equity method. Indicate the total effect of the Jolie investment on Damon's:

1) Net income for 2018.

2) The balance in Damon's investment account on December 31, 2018.

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Expert Solution

ekkarill92 answered 5 months ago

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