X Company owns 80% of Y Company and uses the equity method to account for its investment. On January 1, Year 2, the investment in Y Company account had a balance of $86,900, and Y Company's common shares and retained earnings totalled $100,000. The unamortized acquisition differential had an estimated remaining life of six years at this time.
The following intercompany asset transfers took place in Years 2 and 3: January 1, Year 2, sale of asset to X at a profit of $45,000; and April 30, Year 3, sale of asset to Y at a profit of $60,000. Both assets purchased are being depreciated over five years. In Year 2, Y reported a net income of $125,000 and dividends paid of $70,000, while in Year 3 its net income and dividends were $104,000 and $70,000, respectively.
Required:
Calculate the December 31, Year 3, balance in the account “Investment in Y.” (Assume a 40% tax rate.)