Snow Corporation owns 35 percent of the voting stock of Nivella Corporation. The Investment account on Snow’s books as of January 1, 2010, was $360,000. During 2010, Nivella reported the following quarterly earnings and dividends:

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

Required

1. Prepare a T account for Snow Corporation’s investment in Nivella, 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 Snow 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 Snow’s ownership represented only a 15 percent share of Nivella?

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Dividends Paid Quarter Earnings $ 80,000 120,000 60,000 $ 50,000 50,000 50,000 50,000 $200,000 3 4 (40,000) $220,000