Lovell Corporation purchased 200,000 of the 1 million common shares of Abacus Ltd. on October 1, 2018, at $2.50 per share. Near the end of the fourth quarter ended December 31, Abacus declared dividends on its common shares of $80,000 but payment will not be made until 2019. Abacus also announced that it had net income for the quarter ended December 31, 2018, of $200,000.
Instructions
Record the journal entries that Lovell would make during the last quarter ended December 31, 2018, under the following assumptions:
(a) Lowell has significant influence over Abacus and uses the equity method to account for this investment.
(b) Lowell does not have significant influence over Abacus and uses the cost model to account for this investment.