On January 1, Clayton Incorporated acquired 32% of the outstanding voting shares of Kola Company at a cost of $ 2,196,000 by acquiring 72,000 of the total 225,000 outstanding shares at a cost of $ 30.50 per share. Clayton elected the fair value option. During the year, Kola reported $ 1,238,000 in net income and declared and paid $ 1.15 per share dividends. At the end of the year, the fair value of the investment is $ 2,109,000.
Required
a. Prepare the journal entry torecord the acquisition of the investment securities.
b. Prepare the journal entries at year- end to record the fair value adjustments at the end of the year of acquisition.
c. Prepare the journal entry to record the sale of 65% of the Kola common shares for $ 1,675,000 on January 1 of the year following the acquisition.