Emily Corporation purchased all of Ace Company's common stock on January 1, 2020, for $1,000,000 cash. The investee's stockholders' equity amounted to $400,000. The excess of $600,000 was due to an unrecorded patent with a six-year life. In 2020, Ace reported net income of $250,000 and paid dividends of $25,000.

For 2020, what amount of Equity Income will Emily record?

1. $150,000
2. $125,000
3. $175,000
4. $825,000

Assume the facts in Question 27. What is the Equity Investment balance at December 31, 2020?

1. $ 825,000
2. $1,100,000
3. $1,125,000
4. $1,175,000