On January 1, 2014, Brown Corp. acquired 40% (10,000 shares) of Blue Company common stock for $1,000,000 as a long-term investment. Data from Blue’s 2014 financial statements include the following:
Net income $500,000
Less cash dividends paid 200,000
Increase in retained earnings $300,000
The market value of Blue Company common stock on December 31,2014 was $95 per share. Brown does not have any other noncurrent investments in securities.
Prepare the necessary journal entries for Brown’s investment in Blue under the cost method and the equity method.