On January 1, Allen Corporation purchased 30% of the 48,000 outstanding common shares of Towne Corporation at $17 per share as a long-term investment. On the date of purchase, the book value and the fair value of the net assets of Towne Corporation were equal. During the year, Towne Corporation reported net income of $38,400 and declared and paid dividends of $12,800. As of December 31, common shares of Towne Corporation were trading at $20 per share.

a. Assume that Allen Corporation had significant influence over Towne Corporation. Prepare the entries to record the purchase of the investment, the receipt of declared dividends, and the proportionate share of net income.

b. Assume that Allen Corporation did not have significant influence over Towne Corporation. Record the entries to record the purchase of the investment, the receipt of declared dividends, and the fair value adjustment.

c. Indicate the amount of income that would be reported on the income statement and the investment balance on the year-end balance sheet under requirement (a) and requirement (b).