(Change from Equit. y to Fair. Value) Dan Aykroyd Corp. was a 30% owner of John Belushi Company, holding 210,000 shares of Belushi’s common stock on December 31, 2006. The investment account had the following entries.

On January 2, 2007, Aykroyd sold 126,000 shares of Belushi for $3,440,000, thereby losing its significant influence. During the year 2007 Belushi experienced the following results of operations and paid the following dividends to Aykroyd.

At December 31, 2007, the fair value of Belushi 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, 2007, transaction have upon Aykroyd’s accounting treatment for its investment in Belushi?

(b) Compute the carrying amount in Belushi as of December 31, 2007.

(c) Prepare the adjusting entry on December 31, 2007, applying the fair value method to Aykroyd’s long-term investment in Belushi Company securities.

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1/1/05 Cost 12/31/05 Share of income 12/31/06 Share of income Investment in Belushi $3,180,000 390,000 510,000 12/6/05 Dividend received 12/5/06 Dividend received $150,000 240,000