Nadal Corporation purchased the 10,000 shares of Cutler Inc.’s common stock, on January 1, 2011, for $ 100,000. During 2011, Cutler declared and paid cash dividends to Nadal in the amount of $ 8,000. Nadal’s share of Cutler’s net income for 2011 was $ 12,400. At December 31, 2011, the fair value of 10,000 shares of Cutler’s common stock was $ 120,000. This is Nadal’s only investment.
Required:
1. Assume that Cutler has 75,000 shares of common stock outstanding. What journal entries will Nadal make during 2011 relative to this investment?
2. Assume that Cutler has 40,000 shares of common stock outstanding. What journal entries will Nadal make during 2011 relative to this investment?