Aykroyd Corp. was a 30% owner of Martin Company, holding 210,000 shares of Martin’s common stock on December 31, 2024. The investment account had the following entries.

On January 2, 2025, Aykroyd sold 126,000 shares of Martin for $3,440,000, thereby losing its significant influence. During the year 2025, Martin experienced the following results of operations and paid the following dividends to Aykroyd.

At December 31, 2025, the fair value of Martin shares held by Aykroyd is $1,570,000. This is the first reporting date since the January 2 sale.

Instructions

a. What effect does the January 2, 2025, transaction have upon Aykroyd’s accounting treatment for its investment in Martin?

b. Compute the carrying amount of the investment in Martin as of December 31, 2025 (prior to any fair value adjustment).

c. Prepare the adjusting entry on December 31, 2025, applying the fair value method to Aykroyd’s longterm investment in Martin Company securities.

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1/1/23 Cost 12/31/23 Share of income 12/31/24 Share of income Investment in Martin $3,180,000 390,000 510,000 12/6/23 Dividend received 12/5/24 Dividend received $150,000 240,000