In January 20X1, Harold Corporation acquired 20% of Otis Company’s outstanding common stock for $400,000. This investment gave Harold the ability to exercise significant influence over Otis. The book value of Otis’s net assets was $1,500,000. The excess of cost over book value was attributed to an identifiable intangible asset, a patent, which was undervalued on Otis’s balance sheet and had a remaining 10-year useful life.

For the year ended December 31, 20X1, Otis reported net income of $90,000 and paid cash dividends of $20,000 on its common stock.

Required:

1. How much would Harold Corporation report as investment income in 20X1 related to its investment in Otis?

2. What is the carrying value of Harold’s investment in Otis Company at December 31, 20X1?