Suppose on January 6, 2017, Ling Corp. paid $5,000,000 for its 40 percent investment in True World Inc. Assume True World earned net income of $1,800,000 and paid cash dividends of $800,000 during 2017. Disregard commissions.
1. What method should Ling Corp. use to account for the investment in True World Inc.? Give your reason.
2. Journalize these three transactions on the books of Ling Corp. Include an explanation for each entry.
3. Post to the Investment in True World Inc. Common Shares T-account. What is its balance after all the transactions are posted?