Journal entries to apply the equity method of accounting for investments in securities.

The following information summarizes data about the minority active investments of Stebbins Corporation.

Date Acquired Acquisition Cost Ownership Percentage Book Value of Net Assets on January 1, Year 1 Earnings

(Loss) Divide nds Security Year 1 Year 2 Year 1 Year 2 R 1/1/Year 1 $250,000 25% $800,000 $200,000 $225,000 $125,000 $130,000 S 1/1/Year 1 325,000 40 750,000 120,000 75,000 80,000 80,000 T 1/1/Year 1 475,000 50 950,000 (150,000) 50,000 — —

Company R owns a building with 10 years of remaining life and with a market value exceeding its book value by S 160.000. S40.000. of this amount applies to the shares Stebbins Corporation owns. Stebbins Corporation attributes the rest of any excess of purchase price over book value acquired to goodwill. The building has a 10-year remaining life. The market values of the recorded net assets of Company S and Company T equal their book values.

The firm neither amortizes any goodwill nor finds il impaired.

a. Give the journal entries to record the acquisition of these investments and to apply the equity method during Year I and Year 2.

b. Stebbins Corporation sells Security R on January 1, Year 3, tor $275,000. Give the journal entry to record the sale.