On January 1, 2014, Allan acquires 15 percent of Bellevues outstanding common stock for $62,000. Allan classifies

On January 1, 2014, Allan acquires 15 percent of Bellevue’s outstanding common stock for $62,000. Allan classifies the investment as an available-for-sale security and records any unrealized holding gains or losses directly in owners’ equity. On January 1, 2015, Allan buys an additional 10 percent of Bellevue for $43,800, providing Allan the ability to significantly influence Bellevue’s decisions.

During the next two years, the following information is available for Bellevue:

In each purchase, Allan attributes any excess of cost over book value to Bellevue’s franchise agreements that had a remaining life of 10 years at January 1, 2014. Also at January 1, 2014, Bellevue reports a net book value of $280,000.
a. Assume Allan applies the equity method to its Investment in Bellevue account:
1. On Allan’s December 31, 2015, balance sheet, what amount is reported for the Investment in Bellevue account?
2. What amount of equity income should Allan report for 2015?
3. Prepare the January 1, 2015, journal entry to retrospectively adjust the Investment in Bellevue account to the equity method.
b. Assume Allan uses fair-value accounting for its investment in Bellevue:
1. On Allan’s December 31, 2015, balance sheet, what amount is reported for the Investment in Bellevue account?
2. What amount of income from its investment in Bellevue should Allan report for2015?

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Dividends Declared Common Stock Fair Value (12/31) $438,000 468,000 Income 2014 2015 80,000 100,000 $30,000 40,000