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 a net income of $1,200,000 and pays $295,000 ofcash 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?

What amount of equity earnings would be reported by Bally Corporation?