(Fair Value to Equity Method with Goodwill) On January 1, 2006, Latoya Inc. paid $700,000 for 10,000 shares of Jones Company’s voting common stock, which was a 10% interest in Jones. At that date the net assets of Jones totaled $6,000,000. The fair values of all of Jones’ identifiable assets and liabilities were equal to their book values. Latoya does not have the ability to exercise significant influence over the operating and financial policies of Jones. Latoya received dividends of $2.00 per share from Jones on October 1, 2006. Jones reported net income of $500,000 for the year ended December 31, 2006.
On July 1, 2007, Latoya paid $2,325,000 for 30,000 additional shares of Jones Company’s voting common stock which represents a 30% investment in Jones. The fair values of all of Jones’ identifiable assets net of liabilities were equal to their book values of $6,550,000. As a result of this transaction, Latoya has the ability to exercise significant influence over the operating and financial policies of Jones. Latoya received dividends of $2.00 per share from Jones on April 1, 2007, and $2.50 per share on October 1, 2007.
Jones reported net income of $650,000 for the year ended December 31, 2007, and $400,000 for the 6 months ended December 31, 2007.
Instructions

(a) Prepare a schedule showing the income or loss before income taxes for the year ended December 31, 2006, that Latoya should report from its investment in Jones in its income statement issued in March 2007.

(b) During March 2008, Latoya issues comparative financial statements for 2006 and 2007. Prepare schedules showing the income or loss before income taxes for the years ended December 31, 2006 and 2007, that Latoya should report from its investment in Jones.