On January 4, 2018, Runyan Bakery paid $324 million for 10million shares of Lavery Labeling Company common stock. Theinvestment represents a 30% interest in the net assets of Laveryand gave Runyan the ability to excercise significant influence overLavery's operations. Runyan chose the fair value option to accountfor this investment. Runyan received dividends of $2.00 per shareon December 31, 2018, and Lavery reported net income of $160million for the year ended December 31, 2018. The market value ofLavery's common stock at December 31, 2018 was $31 per share. Onthe purchase date, the book value of Lavery's net assets was $800million and:

a. The fair value of Lavery's depreciable assets, with anaverage remaining useful life of six years, exceeded their bookvalue by $80 million.

b. The remainder of the excess of the cost of the investmentover the book value of net assets purchased was attributable togoodwill. Required:

1-a. Prepare all appropriate journal entries related to theinvestment during 2018, assuming Runyan accounts for thisinvestment under fair value option, and accounts for the Laveryinvestment in a manner similar to what it would use for securitiesfor which there is not specific influence.

(Record the purchase of Lavery stock for $324 million) (RecordRunyan share of Lavery's $160 mil net income)

(Record the receipt of cash dividends of $2 per share on 10 milshares)

(Record any nec. entry related to depreciation. The fair valueof Lavery's depreciable assets, with an average remaining usefullife of six years, exceeded their book value by $80 mil) (Recordany nec. adj entry to correctly report the investment on thebalance sheet. The market value of Lavery's common stock at Dec 312018 was $1 per share)

1-b Calculate the effect of these journal entries on 2018 netincome, and the amount at which the investment is carried in theDecember 31, 2018, balance sheet.

(Effect on net income)

(Investment)

2-a Prepare all appropriate journal entries related to theinvestment during 2018, assuming Runyan accounts for thisinvestment under the fair value option, but uses equity methodaccounting to account for Lavery's income and dividends, and thenrecords a fair value adjustment at the end of the year that allowsit to comply with GAAP.

(Record the purchase of Lavery Labeling stock for $324 mil)

(Record Runyan's share of Lavery's $160 mil net income)

(Record the receipt of cash dividends of $2 per share on 10 milshares)

(Record any nec entry to related depreciation. The fair value ofLavery's depreciable assets, with an avg remaining useful life ofsix years, exceeded their book value by $80 mil) (Record any necadj entry to correctly report the investment on the bal sheet. Themarket value of Lavery's common stock at Dec 31, 2018 was $1 pershare)

2-b Calculate the effect of these journal entries on 2018 netincome, and the amount at which the investment is carried in theDecember 31, 2018, balance sheet.

(Calculate the effect of these journal entries on 2018 netincome, and the amount at which the investment is carried in theDec 31, 2018 balance sheet)

(net income) (Investment)