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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.|
What accounting method should the company use? Why?
Give the journal entries for each of these transactions. If no entry is required, explain why.
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.
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