On January 3, 2016, Pearl Company purchased for $501,000 cash a 10% interest in Martinez Corp. On that date, the net assets of Martinez had a book value of $3,671,000. The excess of cost over the underlying equity in net assets is attributable to undervalued depreciable assets having a remaining life of 10 years from the date of Pearl's purchase. The fair value of Pearl's investment in Martinez securities is as follows: December 31, 2016, $560,000, and December 31, 2017, $516,000. On January 2, 2018, Pearl purchased an additional 30% of Martinez's stock for $1,550,000 cash when the book value of Martinez's net assets was $4,164,000. The excess was attributable to depreciable assets having a remaining life of 8 years. During 2016, 2017, and 2018, the following occurred. 2016 2017 2018 Date Jan. 3, 2016 Martinez Net Income Dec. 31, 2016 On the books of Pearl Company, prepare all journal entries in 2016, 2017, and 2018 that relate to its investment in Martinez Corp., reflecting the data above and a change from the fair value method to the equity method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Equity Investments $347,000 450,000 556,000 Cash Dividends Paid by Martinez to Pearl Cash (To record the purchase of a 10% interest in Martinez Corp.) Dividend Revenue $16,000 18,000 69,000 Debit 501000 16000 Credit 501000 16000 Dec. 31, 2017 Jan. 2, 2018 (To record the receipt of cash dividends from Martinez Corp.) Fair Value Adjustment Unrealized Holding Gain or Loss -Income (To recognize as part of stockholders' equity the increase in fair value of available-for-sale securities.) Cash Dividend Revenue (To record the receipt of cash dividends from Martinez Corp.) Unrealized Holding Gain or Loss - Income Fair Value Adjustment (To recognize as part of stockholders' equity the decrease in fair value of available-for-sale securities.) Investment Revenue Cash Retained Earnings (To record purchase of additional interest in Martinez and to reflect retroactively a change from the fair value to the equity method.) 59000 18000 44000 1665600 59000 18000 44000 1550000 115600 Jan. 2, 2018 Dec. 31, 2018 Investment Revenue. Equity Investments (To reclassify investment carried under fair value method to investment carried under equity method.) Unrealized Holding Gain or Loss - Equity Fair Value Adjustment (To eliminate accounts and balances used under fair value method accounting.) Equity Investments Investment Revenue (To record equity in net income of Martinez.) Cash Investment Revenue (To record the receipt of cash dividends from Martinez Corp.) 501000 16000 222400 69000 X 501000 16000 222400 69000 Accounts Payable Accounts Receivable Accumulated Depreciation-Building Accumulated Depreciation-Equipment Accumulated Depreciation-Machinery Advertising Expense Amortization Expense Allowance for Doubtful Accounts Bad Debt Expense Cash Compensation Expense Consignment Out Construction in Process Copyrights Cost of Goods Sold Deferred Gross Profit Deferred Tax Liability Depreciation Expense Dividend Revenue Due to Customer Discount on Bonds Payable Equipment Equity Investments Equity Investments (Equity Method) Fair Value Adjustment Finance Expense Gain on Disposal of Plant Assets Income Tax Receivable Insurance Expense Interest Expense Interest Payable Interest Receivable Interest Revenue Inventory Inventory on Consignment Investment Revenue Property, Plant, and Equipment Purchases Machinery Maintenance and Repairs Expense No Entry Prepaid Insurance Rent Revenue Retained Earnings Revenue from Investment Salaries and Wages Expense Salaries and Wages Payable Sales Sales Commission Expense Sales Commission Payable Sales Revenue Sales Tax Expense Sales Tax Payable Share Capital Supplies Supplies Expenses Trademarks Unearned Rent Revenue Unrealized Holding Gain or Loss - Equity Unrealized Holding Gain or Loss - Income Warranty Expense Warranty Liability Lawsuit Liability Lawsuit Loss Loss Due to Market Decline of Inventory