Question
On January 1 of the current year, Potter Company buys 150,000 shares of Olivander, Incorporated's common stock for $1,200,000, the book value of the shares.
On January 1 of the current year, Potter Company buys 150,000 shares of Olivander, Incorporated's common stock for $1,200,000, the book value of the shares. This purchase gave Potter 25% ownership in Olivander and the ability to significantly influence operating and financing decisions. At the time of the acquisition, Olivander had a total book value of $4,800,000. During the current year, Olivander reported net income of $700,000 and paid a $0.85 per share dividend.
Potter elects to use the equity method of accounting.
What is the balance in the Investment in Olivander account in the records of Potter at December 31, of the current year?
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