Terry’s Concrete acquired 20% of the outstanding common stock of Blakeley, Inc. on January 1, 2010, by paying $1,100,000 for 40,000 shares. Blakeley declared and paid a $0.50 per share cash dividend on June 30 and again on December 31, 2010. Blakeley reported net income of $600,000 for the year. At December 31, 2010, the market price of Blakeley’s common stock was $30 per share.

Instructions

(a) Prepare the journal entries for Terry’s Concrete for 2010 assuming Terry’s cannot exercise significant influence over Blakeley. (Use the cost method and assume Blakeley common stock should be classified as available-for-sale.)

(b) Prepare the journal entries for Terry’s Concrete for 2010, assuming Terry’s can exercise significant influence over Blakeley. (Use the equity method.)

(c) Indicate the balance sheet and income statement account balances at December 31, 2010, under each method of accounting.