Question - Meredith Corporation acquired 20% of the outstanding common stock of Cairo Corporation on December 31, 2010. The purchase price was $1,250,000 for 50,000 shares. Cairo Corporation declared and paid an $0.80 per share cash dividend on June 30 and on December 31, 2011. Cairo reported net income of $730,000 for 2011. The fair value of Cairo's stock was $27 per share at December 31, 2011.
Required:
1. Prepare the journal entries for Meredith Corporation for 2010 and 2011, assuming that Meredith cannot exercise significant influence over Cairo. The securities should be classified as available-for-sale.
2. Prepare the journal entries for Meredith Corporation for 2010 and 2011, assuming that Meredith can exercise significant control over Cairo.