Buyer Company acquired 25% of Seller Company for $8,000,000 on October 1, 2016. The total fair value of Seller'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 2016 Seller recognized net income of $2,000,000 and paid $1,200,000 ($300,000 per quarter). Seller had a fair value $36,000,000 as of December 31, 2016.

Assume Buyer Company accounts for the Seller Company investment under the equity method.

1. Prepare journal enteries to record all of the relevant transactions for Buyer's books for 2016

2. Indicate the total effect of the Seller investment on Buyer Company's net income for 2016.

3. Indicate the toal effect of the Seller investment on the balance in Buyer Company's investment account on December 31, 2016.