On January 1, 2008, Ace acquires 15 percent of Zach’s outstanding common stock for $52,000 and classifies the investment as an available-for-sale security. On January 1, 2009, Ace buys an addi¬ tional 10 percent of Zach for $43,800. This second purchase gives Ace the ability to influence Zach’s decision making significantly and Ace now applies the equity method.

During 2008 and 2009, Zach reports the following:

Income Dividends Market Value 2008

$ 80,000

$30,000

$ 60,000 2009 100,000 40,000 117,000 In each purchase, Ace attributes any excess of cost over book value to Zach’s franchise agreements that had a remaining life of 10 years at January 1, 2008. As of December 31, 2009, Zach reports a net book value of $390,000.

a. On Ace’s December 31, 2009, balance sheet, what amount is reported for the Investment in Zach account?

b. What amount of equity' income should Ace report for 2009?

c. Prepare the January 1, 2009, journal entries to retroactively adjust the Investment in Zach ac¬ count to the equity method.