Investment Valuation: Cost or Equity — All Debt Guaranteed On 4/1/05, Pote Inc. formed Sote Inc. hy investing $600,000 cash. Pote guaranteed all of Sote’s debt. Sote reported the following items:

At 12/31/05, Pote doubted that it could recover but $200,000 of its initial investment.
1 What is the investment’s carrying value at 12/31/05 and 2006 under the cost method? The eq¬
uity method?
2 What amount did Pote report in its income statement for each year?