Matrix, Inc., acquired 25% of Neo Enterprises for $2,000,000 on January 1, 2018. The fair value

and book value of 25% of Neo's identifiable net assets was $2,000,000 and $1,600,000 on that

date, and the difference was attributable to assets that would be depreciated over 10 years. During

2018 Neo recognized net income of $500,000 and paid dividends of $400,000. Neo had a total fair

value of $10,000,000 as of December 31, 2018.

Required:

(1.) Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix

accounts for that investment as an equity method investment

(2.) Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix

elects the fair-value option.