Assume that an investor has accounted for a $320,000 cost, 8% investment in the investee using the fair value method (available-for-sale designation). The following additional information is available:

	Cumulative Dividends Received from Investee	8% of Accumulated Earnings Recorded by Investee	Cumulative Fair value Adjustment for 8% interest
	$37,500	$98,300	$117,600

Now, suppose the investor acquires an additional 17% interest in the investee (bringing the total to 25%) and concludes that it can now exercise significant influence over the investee.

Required
a. Provide the journal entries necessary to account for the change from the fair value method to the equity method for the original investment.
b. Now, suppose the investor has accounted for his investment using the cost method. Provide the journal entries required to account for the change from the cost method to the equity method for the original investment.

Answer rating: 100% (QA)

a To account for the change from the fair value method to the equity method for the original investm... View the full answer