On January 1, 2025, Millay Inc. paid $700,000 for 10,000 shares of Genso Company’s voting common stock, which was a 10% interest in Genso. Millay does not have the ability to exercise significant influence over the operating and financial policies of Genso. Millay received dividends of $1.50 per share from Genso on October 1, 2025. Genso reported net income of $550,000 for the year ended December 31, 2025. The cost and fair value of Genso common stock was the same at December 31, 2025.

On July 1, 2026, Millay paid $2,325,000 for 30,000 additional shares of Genso Company’s voting common stock, which represents an additional 30% investment in Genso. As a result of this transaction, Millay has the ability to exercise significant influence over the operating and financial policies of Genso. Millay received dividends of $2.00 per share from Genso on April 1, 2026, and $2.50 per share on October 1, 2026. Genso reported net income of $650,000 for the year ended December 31, 2026, and $350,000 for the 6 months ended December 31, 2026.

Instructions

(For both purchases, assume any excess of cost over book value is due to goodwill.)

a. Prepare a schedule showing the income or loss before income taxes for the year ended December 31, 2025, that Millay should report from its investment in Genso in its income statement issued in March 2026.

b. During March 2027, Millay issues comparative financial statements for 2025 and 2026. Prepare schedules showing the income or loss before income taxes for the years ended December 31, 2025 and 2026, that Millay should report from its investment in Genso.