Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000on January 1, 2018. Sonny recognized a total of $400,000 net incomeduring 2018, paid $30,000 of dividends to Fredo during 2018, and atDecember 31, 2018, the market value of the Sonny investmentincreased to $1,040,000.
Required: Prepare the journal entries necessaryto account for the Sonny investment, assuming that Fredo:
(1) Lacks significant influence
(2) Assume that with the 10% purchase Fredo has significantinfluence over the operating and financial policies of theinvestee.
