ED-1 Recording and Reporting an Equity Method Security

Felicia Company acquired 21,000 of the 60,000 shares of outstanding common stock of Nueces Corporation during 2013 as a long-term investment. The annual accounting period for both companies ends December 31. The following transactions occurred during 2013:

Jan. 10	Purchased 21,000 shares of Nueces common stock at $12 per share.
Dec. 31	Nueces Corporation reported net income of $90,000.
Dec. 31	Nueces Corporation declared and paid a cash dividend of $0.60 per share.
Dec. 31	Determined the fair value of Nueces stock to be $11 per share.

Required:

1.

What accounting method should the company use?

_	The consolidation method.
_	The fair value method for trading securities.
_	The equity method.
_	The fair value method for available-for-sale securities.

2.	Prepare the journal entries for each of these transactions Jan. 10 Record the purchase of 21,000 shares (35%) of the common stock of Nueces Corp. at $12 per share. Dec. 31 Record Felecia Company