Suppose on January 1, 2014, Sperrey Motors paid $260 million for a 35% investment in Phase Motors. Assume Phase earned net income of $34 million and declared and paid cash dividends of $17 million during 2014.
1. What method should Sperrey Motors use to account for the investment in Phase? Give your reason.
2. Journalize these three transactions on the books of Sperrey Motors. Show all amounts in millions of dollars (rounded to the closest million), and include an explanation for each entry.
3. Post to the Equity-Method Investment T-account. What is its balance after all the transactions are posted?