Problem #4 On January 1, Year 1, Company A acquires 4% of Company B's outstanding shares for $320,000. This investment does not give Company A any significant influence over Company B. During Year 1, Company B reports net income of $400,000 and declares/distributes total dividends of $80,000 to its shareholders. At December 31, Year 1, the market value of Company B as a whole is $10,000,000. On January 1, Year 2, Company A acquires an additional 8% of Company B's outstanding shares for $800,000. Company A still does not have any significant influence over Company B. During Year 2, Company B reports net income of $360,000 and declares/distributes total dividends of $64,000 to its shareholders. At December 31, Year 2, the market value of Company B as a whole is $9,600,000. On January 1, Year 3, Company A sells half of its holdings in Company B at the prevailing market price (assume the market value of Company B has not changed since the previous day). [4.1] Record all relevant Year 1 journal entries for Company A. [4.2] Record all relevant Year 2 journal entries for Company A. [4.3] Record Company A's journal entry for the sale on January 1, Year 3. Now assume that Company B is a private company whose market value is not readily determinable, and Company A uses the cost method to account for its investment in Company B. Assume no impairments. [4.4] How much total income will Company A recognize related to Company B across Years 1 and 2? [4.5] Under the cost method, assume that on January 1, Year 3, Company A sold half of its holdings in Company B for $590,000. Record Company A's journal entry for the sale. Assume that Company A uses the FIFO method for cost basis allocation