${?}^{***}$ E$21\mathrm{.}23$B $($LO $5)($Change from Equity to Fair Value$)$ EchoLab Inc. was a $40\%$ owner of Quiet

Inc., holding $800,000$ shares of Quiet's common stock on December $31,2024.$ The investment account

had the following entries:

On January $1,2025,$ EchoLab sold $500,000$ shares of Quiet for $$7,500,000,$ thereby losing its significant

influence. During the year $2025$ Quiet experienced the following results of operations and paid the fol$-$

lowing dividends to EchoLab.

At December $31,2025,$ the fair value of Quiet's shares held by EchoLab is $$3,525,000.$ This is the first

reporting date since the January $1$ sale.

Instructions

a$.$ What effect does the January $1,2025,$ transaction have upon EchoLab's accounting treatment for its

investment in Quiet?

b$.$ Compute the carrying amount in Quiet as of December $31,2025.$

c$.$ Prepare the adjusting entry on December $31,2025,$ applying the fair value method to EchoLab's

long$-$term investment in Quiet securities$.$