On January 1, 2012, Easton Entertainment acquired common stock of Wild Inc. At the time of acquisition, the book value and the market value of Wild's net assets were $420 million. During the current year, Wild earned $100 million and declared dividends of $20 million. The market value of Wild on December 31, 2012, was $480 million.
For each scenario below, determine the amount that Easton would report on its balance sheet for its investment in Wild at December 31, 2012; and the amount of income Easton would report for 2012 related to its investment.
a. Scenario 1: Easton Entertainment paid $48 million for a 10% interest in Wild and classifies the Wild stock as trading securities.
b. Scenario 2: Easton Entertainment paid $130 million for a 30% interest in Wild and uses the equity method to account for the investment.