Bally Corporation purchases an investment in Monte Carlo, Inc. at a purchase price of $7 million cash, representing 40% of the book value of Monte Carlo, Inc. During the year, Monte Carlo reports net income of $1,200,000 and pays $295,000 of cash dividends. At the end of the year, the market value of Bally’s investment is $8.5 million.
What is the year-end balance of the equity investment in Monte Carlo?
a. $7,000,000
b. $7,480,000
c. $8,910,000
d. $7,362,000
e. $8,500,000