Felicia Company acquired 21,000 of the 60,000 shares of outstanding common stock of Nueces Corporation as a long- term investment. The annual accounting period for both companies ends December 31. The following transactions occurred during the year:
Jan. 10 Purchased 21,000 shares of Nueces common stock at $ 12 per share.
Dec. 31 Nueces Corporation reported net income of $ 90,000.
Dec. 31 Nueces Corporation declared and paid a cash dividend of $ 0.60 per share.
Dec. 31 Determined the fair value of Nueces stock to be $ 11 per share.
Required:
1. What accounting method should the company use? Why?
2. Give the journal entries for each of these transactions. If no entry is required, explain why.
3. Show how the long- term investment and the related revenue should be reported on the financial statements of Felicia Company.