Earth Inc. purchased $10,000$ of the common shares of Ocean Inc. on January $1,$ Year $2$ for

$$180,000.$ Ocean had $100,000$ common shares outstanding. During Year $2,$ Ocean had

income of $$80,000$ and paid dividends of $$50,000.$ On December $31,$ Year $2$ the selling

price of Ocean$’$s shares was $$19$ per share.

Earth purchased additional $20,000$ shares of the common shares of Ocean on April $1,$

Year $3$ for $$420,000.$ On that date the net assets of Ocean had a carrying value of

$$1,600,000$ and all of the individual assets of Ocean had fair values that were equal to

their carrying values except for:

Fair Value Carrying value

Building $($remaining life of $5$ years$)$ $$150,000$ $ $100,000$

During Year $3,$ Ocean had income of $$200,000$ earned evenly over the year. On

December $31,$ Ocean declared dividends of $$70,000.$

On January $2,$ Year $4,$ because of negative market indicators, the market value of Ocean$’$s

common shares was $$18$ per share and this decline was considered permanent. Assume

year end is December $31.$

Required: Prepare all the journal entries that Earth should prepare regarding this

investment in Ocean for Years $2,3$ and on January $2,$ Year $4.$

Round to the nearest dollar. Show all work and schedules

Hint: Goodwill $=$ $$135,000$

$•$ You must prepare the AD schedule based only on $\%($see Exhibit $4\mathrm{.}3).$ Why?

Because under the equity method you show the impact of all consolidation$-$type

adjustments.