On January 2, 2018, Johnson Company paid $262,000 to acquire 12,000 shares of Pets Corp. The investment represented 25% of the total shares outstanding of Pets Corp. and gave Johnson Company the ability to exert significant influence upon the operations of Pets Corp. During the year ended December 31, 2018, Pets Corp. paid dividends of $1.75 per share (declared and paid on November 12, 2018) and reported income of $269,000. The market value of Pets Corp. stock at December 31, 2018, was $19.75 per share. On the date of the acquisition the book value of Pets Corp. was $772,000 and the fair value of the assets at that time were consistent with the book value except for Equipment which was undervalued by $36,000, with a remaining life of 10 years. Any excess fair value attributable to the acquisition (over cost of acquisition) was applied to goodwill.

1. Prepare all appropriate journal entries related to the investment for 2018, assuming Johnson uses the equity method to account for the acquisition. Show your work representing the development and allocation of the consideration paid.

2. Prepare all appropriate journal entries related to the investment for 2018, assuming that the purchase of the 12,000 shares only represented 10% of the outstanding stock of Pets Corp. and Johnson uses the fair value method to account for the acquisition. Keep in mind the new rules associated with investments in stock instruments must be treated as trading securities, effective 2018