Part a

On January 1, 2020, Audrey Corporation (the investor) paid $73,934,656 to buy an investment of $80 million (par value) 8% bonds of Amanda, Inc. (the issuer). At that time, the market yield for bonds of similar risk and maturity was 10%. The bonds pay interest annually on December 31.

Due to changing market conditions, the fair value of the bonds at December 31, 2020, was $70 million.

Required

Assume that Audrey classifies this investment as available-for-sale. Prepare all necessary journal entries related to this investment on

1. January 1, 2020
2. December 31, 2020

Part b

On January 1, 2020, Canada Company purchased 8,000 shares (40%) of Mexico Company common stock for $240,000. The par value of Mexicos common stock is $10.

Canada Company does not plan to actively trade its holdings of Mexico Company stock.

During 2020, Canada receives a $0.75 per share dividend from Mexico, and Mexico announces a net income of $250,000 for the year. According to The Wall Street Journal, Mexicos common stock is trading at $27 per share on December 31, 2020.

Required

1. What method should Canada use to account for its investment in Mexico?
2. Prepare the necessary journal entries to account for this investment on the books of Canada Company on January 1, 2020 and December 31, 2020.