Newman Corporation Purchases an Investment in Paul, Inc

Essay

Newman Corporation purchases an investment in Paul, Inc. at a purchase price of $6 million cash, representing 25% of the book value of Paul, Inc. During the year, Paul, Inc. reports net income of $700,000 and pays $120,000 of cash dividends. At the end of the year, the fair value of Newman's investment is $6.4 million.
A. What is the year-end balance of the equity investment account?
B. What amount of equity earnings would be reported by Newman Corporation?
C. How are dividends treated in equity method accounting? What amount in dividends is reported?
D. What is the amount of the unrealized gain or loss to be reported for the year?