Equity Method Investment On January 1, 2022, Ace Beverages purchases 40 percent of the stock of an organic sports drink company, Sporty Inc., at a cost of $1,000,000 when Sporty's book value was $2,000,000. Ace has a significant influence over Sporty's operating and financial decisions. The excess of investment cost over book value is attributed entirely to goodwill, and there are no intercompany transactions between the two companies. Sporty reports the following income and dividends for 2022 through 2025: Income (Loss) Dividends $100,000 $5,000 (40,000) 25,000 80,000 2022 2023 2024 2025 2,000 20,000 Required a. Calculate the basis difference that is attributed to goodwill. $ b. Calculate the investment balance, reported on Ace's December 31, 2025, balance sheet. $

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