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Heart Company has a total of 750,000 shares issued.Diamonds Inc.purchases 150,000 of Heart shares for $10 \ share on January 1, 2011.On December 31, 2011, Heart has a net income of $125,000 and Heart shares are trading for $9.50 \ share.
-If this is a strategic investment, Diamond must making the following entry on December 31:

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Use the following information to answer questions 
Heart Company has a total of 750,000 shares issued.Diamonds Inc.purchases 150,000 of Heart shares for $10 \ share on January 1, 2011.On December 31, 2011, Heart has a net income of $125,000 and Heart shares are trading for $9.50 \ share.
-If this is a strategic investment, Diamond must making the following entry on December 31:

Quizplus · Accepted Answer

Since this is a strategic investment, Diamond must account for it using the equity method. Therefore, the entry on December 31 would be to debit Investment in shares and credit Equity in Earnings of Investee for Diamond's share of Heart's net income for the year. There is no need to adjust for changes in the fair value of the shares since it is a long-term investment.

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