Kross Company purchases an equity investment in Penno Company at a purchase price of $4.5 million, representing 40% of the book value of Penno. During the current year, Penno reports net income of $540,000 and pays cash dividends of $180,000. At the end of the year, the fair value of Kross’s investment is $4.77 million.
a. What amount of income does Kross report relating to this investment in Penno for the year?