*E22-23B (Change from Equity to Fair Value) EchoLab Inc. was a 40% owner of Quiet Inc., holding 800,000 shares of Quiet’s common stock on December 31, 2014. The investment account had the following entries. Investment in Quiet 1/1/13 Cost $8,100,000 9/8/1

*E22-23B (Change from Equity to Fair Value) EchoLab Inc. was a 40% owner of Quiet Inc., holding 800,000 shares of Quiet’s common stock on December 31, 2014. The investment account had the following entries.

 

                                                            Investment in Quiet                                                      

1/1/13 Cost                           $8,100,000           9/8/13 Dividend received       $325,000

12/31/13 Share of income       650,000           9/2/14 Dividend received         400,000

12/31/14 Share of income       835,000

 

On January 1, 2014, EchoLab sold 500,000 shares of Quiet for $7,500,000, thereby losing its significant influence.

During the year 2015 Quiet experienced the following results of operations and paid the following dividends to EchoLab.

                                               Quiet                     Dividends

                              Paid

                                         Income (Loss)           to EchoLab

                                          $1,600,000                  $310,000

At December 31, 2015, the fair value of Quiet’s shares held by EchoLab is $3,525,000. This is the first reporting

date since the January 1 sale.

Instructions

(a) What effect does the January 1, 2015, transaction have upon EchoLab’s accounting treatment for its investment in Quiet?

(b) Compute the carrying amount in Quiet as of December 31, 2015.

(c) Prepare the adjusting entry on December 31, 2015, applying the fair value method to EchoLab’s long-term investment in Quiet securities.

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