please show work if you are able S8-3(Learning Objective 3: Analyze and report a
ID: 2578407 • Letter: P
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please show work if you are able
S8-3(Learning Objective 3: Analyze and report an investment in an affiliate) 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 s20 million during 2012. 1. What method should Western Motors use to account for the investment in Phase? Give your reason. 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. 3. Post to the Long-Term Investment T-account. What is its balance after all the transactions are posted?Explanation / Answer
1) Equity method should Western Motors use to account for the investment in Phase since the investor (Western Motors) holds a 35% investment in the investee company (Phase Motors). 2) Amount in Millions Account Titles and Explanation Debit Credit a) Long-Term Investment $380.00 Cash $380.00 (To purchase Investment) b) Long-Term Investment ($40 × .35) $14.00 Investment Revenue $14.00 (To record investment revenue) c) Cash $7.00 Long-Term Investment ($20 × .35) $7.00 (To receive cash dividend) 3) Long-Term Investment (Amounts in millions) Purchase 380 Dividends received 7 Net income 14 Balance 387
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