Large, Inc. purchases 100,000 shares of Medium, Inc. (representing 10% ownership interest) for $20 per share on 1/1/2007. They classify this investment as “Trading”. At the end of 2007, Medium, Inc. stock is selling for $10 per share, Medium, Inc.’s 2007 Net Income was $2,000,000, and they paid a $1 per share dividend in December of 2007. At the end of 2008, Medium, Inc. stock is selling for $12 per share, Medium, Inc.’s 2008 Net Income was $4,000,000, and they paid a $3 per share dividend in December of 2008. On 1/1/2009 they purchase another 150,000 shares (for $12 per share) to increase their ownership interest to 25%.

What is the journal entry (or entries) to change to the equity method on 1/1/2009?

Assume that Large, Inc. reported a pre-tax Net income of $21,300,000 in 2007. What would they report as adjusted 2007 Pre-Tax Income when they prepare their 2009 financial statements (Note: the SEC requires companies to provide income statements for the prior two periods for comparability purposes)?