Recording Investments in SecuritiesEquity Method

On January 1, 2020, Rae Company purchased 8,000 of the 40,000 shares outstanding of common stock (par $1) of Sundem Corporation for $80,000 cash. Assume that the fair value and book value of all net assets of Sundem were the same at that time. This is the only long-term equity investment held and the ownership of Sundem shares represents a significant interest. The accounting periods for both Rae and Sundem end on December 31.

Sundem Corporation Year 2020
Income reported for 2020	$40,000
Cash dividend per share declared and paid on December 15, 2020	$1.50
Market price per share of stock, December 31, 2020	$12.00

Year 2021
Income reported for 2021	$50,000
Cash dividend per share declared and paid on December 15, 2021	$1.50
Market price per share of stock, December 31, 2021	$11.00

a. Provide all of the entries required for Rae Company for 2020 and 2021 including the investment purchase, receipt of declared dividends, and year-end adjusting entries. Account Name Dr. Cr. Date Jan. 1, 2020 - Dec. 15, 2020 0 0 Dec. 31, 2020 o o o o o o o o o o O O O O O O O O O O Dec. 15, 2021 A 0 Dec. 31, 2021 0 0 b. Show how the long-term investments in equity securities and the related investment income would be reported on the balance sheet and income statement of Rae Company at the end of each year. Balance Sheet, Dec. 31 2020 Assets $ 0 2020 Income Statement Other gains or losses $ 0 Balance Sheet, Dec. 31 2021 Assets $ 0 2021 Income Statement Other gains or losses $ 0