Problem 3 Matrix, Inc acquired 25% of Neo Enterprises for $2,000,000 on January 1, 2011. During 2011 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, 2011.

Required: Prepare the journal entries necessary to account for the Neo investment, assuming that Fredo accounts for that investment as (1) an equity method investment, and (2) elects the fair-value option