WaterwayCorp. is a medium-sized corporation specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company's profits, coupled with a conservative dividend policy, resulted in funds available for outside investment. Over the years,Waterwayhas had a policy of investing idle cash in equity securities. In particular,Waterwayhas made periodic investments in the company's principal supplier, Norton Industries. Although the firm currently owns 12% of the outstanding common stock of Norton Industries,Waterwaydoes not have significant influence over the operations of Norton Industries.

Cheryl Thomas has recently joinedWaterwayas assistant controller, and her first assignment is to prepare the 2017 year-end adjusting entries for the accounts that are valued by the "fair value" rule for financial reporting purposes. Thomas has gathered the following information aboutWaterway' pertinent accounts.

1.Waterwayhas equity securities related to Delaney Motors and Patrick Electric. During 2017,Waterwaypurchased98,000shares of Delaney Motors for $1,377,000; these shares currently have a fair value of $1,608,000.Waterway' investment in Patrick Electric has not been profitable; the company acquired55,000shares of Patrick in April 2017 at $21per share, a purchase that currently has a value of $708,000.

2.Prior to 2017,Waterwayinvested $22,576,000in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,695,000on December 31, 2016.Waterway' 12% ownership of Norton Industries has a current fair value of $22,165,000on December 2017.

part 1

Prepare the appropriate adjusting entries forWaterwayas of December 31, 2017, to reflect the application of the "fair value" rule for the securities described above.