On January 2, 20x6, the Healey Company made several long-term investments in the voting stock of various companies. It purchased 10,000 shares of Zima at $4.00 a share, 15,000 shares of Kane at $6.00 a share, and 6,000 shares of Rodriguez at $9.00 a share. Each investment represents less than 20 percent of the voting stock of the company. The remaining securities transactions of Healey during 20x6 were as follows:

May 5 Purchased with cash 6,000 shares of Drennan stock for $6.00 per share. This investment represents less than 20 percent of the Drennan voting stock.

July 16 Sold the 10,000 shares of Zima stock for $3.60 per share.

Sept. 30 Purchased with cash 5,000 additional shares of Kane for $6.40 per share. This investment still represents less than 20 percent of the voting stock.

Dec. 31 The market values per share of the stock in the Long-Term Investments account were as follows: Kane, $6.50; Rodriguez, $8.00; and Drennan, $4.00.

Healey’s transactions in securities during 20x7 were as follows:

Feb. 1 Received a cash dividend from Kane of $.20 per share.

July 15 Sold the 6,000 Rodriguez shares for $8.00 per share.

Aug. 1 Received a cash dividend from Kane of $.20 per share.

Sept. 10 Purchased 3,000 shares of Parmet Company for $14.00 per share.

This investment represents less than 20 percent of the voting stock of the company.

Dec. 31 The market values per share of the stock in the Long-Term Investments account were as follows: Kane, $6.50; Drennan, $5.00; and Parmet, $13.00.

Required 1. Prepare entries in journal form to record all of Healey Company’s transactions in long-term investments during 20x6 and 20x7.

2. User Insight: Assume that Healey increased its ownership in Kane to 25 percent and its ownership in Parmet to 60 percent in 20x8. How would these actions affect the methods used to account for the investments?

Long-Term Investments: Equity Method