(The equity method of accounting, LO 2) On June 1, 2006 Wostok Corp. (Wostok)

purchased 1,000,000 common shares of Griffin Ltd. (Griffin) for $2,000,000. The investment represents a 40% interest in Griffin and gives Wostok significant influence over Griffin. During fiscal 2007 Griffin reported net income of $1,100,000 and paid dividends of $0.50 per share. No adjustments to Griffin’s net income for fair value adjustments, intercompany transactions, or goodwill are required. Both companies have May 31 year ends.

Required:

a. Prepare the journal entry that Wostok would make to record its investment in Griffin.

b. How much would Wostok report on its May 31, 2007 income statement from its investment in Griffin?

c. What amount would be reported on Wostok’s May 31, 2007 balance sheet for its investment in Griffin?