Long-Term Investments: Equity Method

Bon Company owns 40 percent of the voting stock of Macree Company. The investment account for this company on Bon’s balance sheet had a balance of $300,000 on January 1, 20xx. During 20xx, the Macree Company reported the following quarterly earnings and dividends paid:

Required

1. Prepare a T account for Bon’s investment in Macree. Enter the beginning balance, the relevant entries for the year in total, and the ending balance.

2. User Insight: What is the effect and placement of the entries in requirement 1 on Bon Company’s earnings as reported on the income statement?

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

4. User Insight: How would the effects on the statements differ if Bon’s ownership represented only a 10 percent share of Macree?