Exercise 1

Crake Corporation paid $50,000 for a 10% interest in Lagoon Corp. on January 1, 2018, when Lagoons stockholders equity consisted of $400,000 of $10 par value common stock and $100,000 retained earnings. On December 31, 2019, Crake paid $96,000 for an additional 20% interest in Lagoon Corp. Both of Crakes investments were made when Lagoons book values equaled their fair values. Crake Corporation determines that cumulative dividends for 2019exceed its cumulative share of income by $200, and the 2018 investment in Lagoon Corp fair value increased to $55,000 On December 31, 2019.

Lagoons net income and dividends for 2018 and 2019 were as follows:

	2018		2019
Net income	$30,000		$70,000
Dividends	$10,000		$20,000

Required:
1.	Prepare journal entries for Crake Corporation to account for its investment in Lagoon Corporation for 2018 and 2019.
2.	Calculate the balance of Crakes investment in Lagoon at December 31, 2019.