On January 1, 2007 Doe Company purchased 3,000 of the 10,000 common shares outstanding of the Ray Company for $15 per share and obtained significant influence. Doe amortizes its patents over 10 years. The December 31, 2006 condensed balance sheet of the Ray Company is shown here:

Doe Company was unable to determine the fair value of the Ray Company identifiable net assets shown on the preceding balance sheet. It did, however, determine that Ray Company uses the straight-line method (no residual value) to depreciate its fixed assets and to amortize its patents over 20 years and 10 years, respectively. At the end of 2007 Ray Company disclosed the following condensed income statement and retained earnings statement for 2007:

Required
Prepare all the 2007 journal entries that Doe should make related to this investment. Show and label all supportingcalculations.

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10,000 Lialies 50,000 Current assets Fixed assets (net) 100, Patents (net) Common stock, no par Retained earnings 30,000 70,000 40,000 $150,000 150,000 Revenues Expenses Operating income Extraordinary loss(8,000) Net income $100,000 Beginning retained earnings 70,000 32,000 $ 102,000 (20,000) S 82,000 (60,000)Add: Net income 40,000 Less: Cash dividends Ending retained earnings