On Jan. 2, 2011, RB Co. paid $324 million for 10 million shares of LL Inc. common stock. The investment represents a 30% interest in LL Inc. assets. The book value of LL Inc. net assets was equal to fair value at the date of purchase.
RB Co. received $2 dividends per share on December 15, 2011. LL Inc. reported net income of $160 million for the year 2011. The market value of LL Inc. stocks was $31 per share on December 31, 2011.
Required:
1. Prepare all journal entries related to the investments in common stock for the year 2011 assuming that they are classified as trading securities.
2. Prepare all journal entries related to the investments in common stock for the year 2011 assuming that RB Co. accounts for the investment by the equity method.