Recording and Reporting an Equity Method Investment Gioia Company acquired some of the 65,000 shares of outstanding common stock (no par) of Tristezza Corporation during 2011 as a long term investment. The annual accounting period for both companies ends December 31. The following transactions occurred during 2011:
Jan. 10 Purchased 17,875 shares of Tristezza common stock at $11 per share.
Dec. 31 a. Received the 2011 financial statements of Tristezza Corporation that reported net income of $80,000.
b. Tristezza Corporation declared and paid a cash dividend of $0.60 per share.
c. Determined the market price of Tristezza stock to be $10 per share.
1. What accounting method should the company use? Why?
2. Give the journal entries for each of these transactions. If no entry is required, explain why.
3. Show how the long term investment and the related revenue should be reported on the 2011 financial statements (balance sheet and income statement) of the Gioia Company.