International Printers Ltd owns 45 percent of the voting shares of Nomad Printers Ltd. It acquired the shares several years ago for $10 million. Nomad lost money for some years after acquisition, but has recently begun to be profitable. Since International acquired its shares, Nomad has had losses totalling $790 000 and profits totalling $940 000, for a total net profit since acquisition of $150 000. Last year, Nomad paid its first dividend, $100 000.

1. International accounts for its investment in Nomad on the cost basis. What is the present figure for investment in Nomad on the balance sheet of International?

2. International presents statements using the equity method. What does this mean? What would be the present figure for investment in Nomad on the balance sheet of International using the equity method?

3. What difference would it make to the balance sheet of International if the Nomad investment were consolidated instead of using the equity method?

4. Suppose that International had bought 65 percent of the Nomad voting shares for its $10 million and that, at that date, the following values existed for Nomad: book value of assets, $18 million; sum of fair values of assets, $19 million; book value of liabilities, $7 million; and sum of fair values of liabilities, $10 million. Calculate the goodwill that would have been shown on the consolidated balance sheet of International if the Nomad investment had been consolidated at that date.