Suppose on February 1, 2014, General Motors paid $41 million for a 40% investment in ABC Ltd., an auto parts manufacturer. Assume ABC earned net income of $6 million and paid cash dividends of $2 million during 2014.
1. What method should General Motors use to account for the investment in ABC? Give your reason.
2. Journalize these three transactions on the books of General 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?