Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2013. Sonny recognized a total of $400,000 net income during 2013, paid $30,000 of dividends to Fredo during 2013, and at December 31, 2013, the market value of the Sonny investment increased to $1,040,000.
Required:
Prepare the journal entries necessary to account for the Sonny investment, assuming that Fredo accounts for that investment as (1) an available-for-sale investment, and (2) elects the fair-value option.

Question

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The Answer of Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2013. Sonny recognized a total of $400,000 net income during 2013, paid $30,000 of dividends to Fredo during 2013, and at December 31, 2013, the market value of the Sonny investment increased to $1,040,000.
Required:
Prepare the journal entries necessary to account for the Sonny investment, assuming that Fredo accounts for that investment as (1) an available-for-sale investment, and (2) elects the fair-value option.