Reference no: EM132631043

Change from the fair value method to the equity method Assume an investor company acquires for $320,000 an 8% investment in the common stock of an investee company on February 15, 2018. The investor determined the common stock of the investee has a readily determinable fair value. On December 31, 2018, the fair value of the 8% common stock investment is $340,000, and the investor company made all of the appropriate adjustments in prepara- tion of the annual ?nancial statements. On March I, 2019, the investor company acquires an additional 17% of common stock of the investee for $765,000, thereby increasing the investor's overall ownership interest to 25%.

Required

Question 1: Prepare the journal entries the investor company should record on March 1, 2019.

Question 2: For this question only, assume instead that the investor determined, on February 15, 2018, that the common stock of the investee does not have a readily determinable fair value. In addition, the investor company determined that the additional 17% common stock purchase on March 1, 2019 does qualify as an observable price change in orderly transaction. Prepare the journal entries the investor company should record on March 1, 2019.