EchoLab Inc. was a 40% owner of Quiet Inc., holding 800,000 shares of Quiets common stock on

EchoLab Inc. was a 40% owner of Quiet Inc., holding 800,000 shares of Quiet’s common stock on December 31, 2014. The investment account had the following entries.

On January 1, 2014, EchoLab sold 500,000 shares of Quiet for $7,500,000, thereby losing its significant influence. During the year 2015 Quiet experienced the following results of operations and paid the following dividends to EchoLab.

At December 31, 2015, the fair value of Quiet’s shares held by EchoLab is $3,525,000. This is the first reporting date since the January 1 sale.

Instructions
(a) What effect does the January 1, 2015, transaction have upon EchoLab’s accounting treatment for its investment in Quiet?
(b) Compute the carrying amount in Quiet as of December 31, 2015.
(c) Prepare the adjusting entry on December 31, 2015, applying the fair value method to EchoLab’s long-term investment in Quietsecurities.

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Investment in Quiet $8,100,000 9/8/13 Dividend received $325,000 1/1/13 Cost 12/31/13 Share of income 650,000 9/2/14 Dividend received 400,000 12/31/14 Share of income 835,000 Quiet Dividends to EchoLab $310,000 Paid Income (Loss $1,600,000