Problem:
Suppose on February 1, 2012, Western Motors paid $380 million for a 35% investment in Phase Motors. Assume Phase earned net income of $40 million and paid cash dividends of $20 million during 2012.
Required:
Question 1: What method should Western Motors use to account for the investment in Phase? Give your reason.
Question 2: Journalize these three transactions on the books of Western Motors. Show all amounts in millions of dollars and include an explanation for each entry.
Question 3: Post to the Long-Term Investment T-account. What is its balance after all the transactions are posted?.
Note: Please show how to work it out.