Change from Equity to Fair Value Gamble Corp. was a 30% owner of Sabrina Company, holding 210,000 shares of Sabrina's common stock on December 31, 2010. The investment account had the following entries. On January 2, 2011, Gamble sold 126,000 shares of Sabrina for $3,440,000, thereby losing its significant influence. During the year 2011 Sabrina experienced the following results of operations and paid the following dividends to Gamble.
Sabrina Dividends Paid
Income (Loss) to Gamble
2011 $350,000 $50,400
At December 31, 2011, the fair value of Sabrina shares held by Gamble is $1,570,000. This is the first reporting date since the January 2 sale.
(a) What effect does the January 2, 2011, transaction have upon Gamble's accounting treatment for its investment in Sabrina?
(b) Compute the carrying amount in Sabrina as of December 31, 2011.
(c) Prepare the adjusting entry on December 31, 2011, applying the fair value method to gamble's long-term investment in Sabrina Company securities.
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