Investment in Equity Securities
On January 10, 2008, Washington Corporation acquired 20,000 shares of the outstanding common stock of United Company for $900,000. At the time of purchase, United Company had outstanding 80,000 shares with a book value of $3.6 million. On December 31, 2008, the following events took place:
(a) United reported net income of $180,000 for the calendar year 2008.
(b) Washington received from United a dividend of $0.75 per share of common stock.
(c) The market value of United Company stock had temporarily declined to $40 per share.
Give the entries that would be required to reflect the purchase and subsequent events on the books of Washington Corporation, assuming that (1) the security is classified as available for sale and (2) the equity method is appropriate.