Suppose that on January 6, 2014, Eastern Motors paid $ 380,000,000 for its 40% investment in Phase

Question:

Suppose that on January 6, 2014, Eastern Motors paid $ 380,000,000 for its 40% investment in Phase Motors. Assume Phase earned net income of $ 50,000,000 and paid cash dividends of $ 25,000,000 to all outstanding stockholders during 2014. (Assume all outstanding stock is voting stock.)

Requirements

1. What method should Eastern Motors use to account for the investment in Phase Motors? Give your reasoning.

2. Journalize all required 2014 transactions related to Eastern Motors’ Phase investment. Include an explanation for each entry.

3. Post all 2014 transactions to the investment T-account. What is its balance after all the transactions are posted? How would this balance be classified on the balance sheet dated December 31, 2014?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...