Rylander Corporation owns 35 percent of the voting stock of Waters Corporation. The Investment account on Rylander€™s books as of January 1, 2011, was $720,000. During 2011, Waters reported the following quarterly earnings and dividends.

Because of the percentage of voting shares Rylander owns, it can exercise significant influence over the operations of Waters Corporation. Therefore, Rylander Corporation must account for the investment using the equity method.

Required

1. Prepare a T account for Rylander Corporation€™s investment in Waters, and enter the beginning balance, the relevant entries for the year in total, and the ending balance.

2. What is the effect and placement of the entries in requirement 1 on Rylander Corporation€™s earnings as reported on the income statement?

3. What is the effect and placement of the entries in requirement 1 on the statement of cash flows?

4. How would the effects on the statements differ if Rylander€™s ownership represented only a 15 percent share of Waters?

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Quarter Dividends Paid Earnings $160,000 240,000 120,000 80,000) $440,000 $100,000 100,000 100,000 100,000 $400,000