Puff Co. acquired 40% of Straw, Inc.’s voting common stock on January 2, 2007, for $400,000. The carrying amount of Straw’s net assets at the purchase date totaled $900,000. Fair values equaled carrying amounts for all items except equipment, for which fair values exceeded carrying amounts by $100.000. The equipment has a five-year life. During 2007, Straw reported net income of $150,000. What amount of income from this investment should Puff report in its 2007 income statement?

  1. $40,000
  2. $52,000
  3. $56,000
  4. $60,000