Recording and Reporting an Equity Method Security Felicia Company acquired some of the 60,000 outstanding common shares of Nueces Corporation during 2014, as a non- current investment. The fiscal year for both companies ends December 31. The following transactions occurred during 2014: Jan. 10 Purchased 21,000 of Nueces common shares at $ 12 per share.
Dec. 31 a. Received the 2014 financial statements of Nueces Corporation that reported net earnings of $ 90,000.
b. Nueces Corporation declared and paid a cash dividend of $ 0.60 per share.
c. Determined the market price of Nueces stock to be $ 11 per share. The decrease in price is not considered an impairment in the value of the investment.
1. What accounting method should the company use? Why?
2. Prepare the journal entries for each of these transactions. If no entry is required, explain why.
3. Show how the non- current investment and the related revenue should be reported on the 2014 financial statements (statement of financial position and statement of earnings) of the company.