As a long-term investment at the beginning of the fiscal year, Joey Co. purchased 30% of Legoria Supplies, Inc.’s 8 million shares for $56 Million. The fair value and book value of the shares were the same at that time. During the year, Legoria Supplies Inc. earned net income of $40 million and distributed cash dividends of $1.25 per share. At the end of the fiscal year, the fair value of the shares acquired by Joey Co. is $60 million. Joey Co’s 30% investment in Legoria Supplies Inc gives it significant influence.
Required:
1) Prepare appropriate the appropriate journal entry(s) throughout the fiscal year for this investment using the Equity Method.
2) Prepare the journal entry(s) throughout the fiscal year if Joey Co. elects the “Fair Value Option” for this investment rather than the Equity Method.