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:

Bon Company exercises a significant influence over Macree’s operations and therefore uses the equity method to account for its investment.
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?
Consolidated Balance Sheet: Cost Exceeding Book Value

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Quarter Earnings I $ 40,000 Dividends Paid $20,000 234 30,000 20,000 80,000 20,000 (20,000) 20,000 $130,000 $80,000