On July 1, 2017, Johnson Company purchased for cash 30% of the outstanding voting common stock of Ace Corporation. Both Johnson and Ace have a December 31 year-end. Ace Corporation, whose common stock is actively traded on the New York Stock Exchange, paid a cash dividend $460,000 on November 15,2017 to Johnson Company and its other stockholders. It also reported its total net income for the year of $920,000 to Johnson Company.

Required: You are to prepare a Memorandum of Instructions on how Johnson Company should report the above facts in its December 31, 2017, balance sheet and its December 31, 2017 income statement.

In your Memo:

Discuss as follows in regard to the Investment in Investee account

The method of recommended valuation

Identify, describe, and provide the reason(s) for your recommendation(s).