6 Not changed since last attempt Marked out of 1.43 PFlag question Reporting a Change to the Equity Method Assume an investor company acquires for $9,600 a 5% investment in the common stock of an investee company on February 15, 2021. The investor determined the common stock of the investee has a readily determinable fair value. On December 31, 2021, the fair value of the 5% common stock investment is $11,760, and the investor company made all of the appropriate adjustments in preparation of the annual financial statements. On March 1, 2022, the investor company acquires an additional 20% of common stock of the investee for $48,640, thereby increasing the investor's overall ownership interest to 25%. Required a. Prepare the journal entries the investor company should record on March 1, 2022. b. For this question only, assume instead that the investor determined, on February 15, 2021, that the common stock of the investee does not have a readily determinable fair value. In addition, the investor company determined that the additional 20% common stock purchase on March 1, 2022 does qualify as an observable price change in orderly transaction. Prepare the journal entries the investor company should record on March 1, 2022. c. For this question only, assume instead that the investor determined, on February 15, 2021, that the common stock of the investee does not have a readily determinable fair value. In addition, the investor company determined that the additional 20% common stock purchase on March 1, 2022 does not qualify as an observable price change in orderly transaction. Prepare the journal entries the investor company should record on March 1, 2022. Debit Credit 400 0 0 400 48,640 0 0 48,640 a. Equity investment Unrealized holding gain (in net income) < (to record the purchase of an additional 20% interest in the common stock.) Equity investment Cash (to adjust the existing 5% holding of investee stock to fair value.) b. Equity investment Unrealized holding gain (in net income) < > > (to record the purchase of an additional 10% interest in the common stock.) Equity investment Cash (to adjust the existing 5% cost-based holding of investee stock to fair value.) C. Equity investment Cash (to record the purchase of an additional 10% the common stock.) E A 0 0 2.560 2,560 48,640 0 0 48,640 0 0 48,640 48,640