Question
8.11 Equity Method for Minority, Active Investments. U.S. GAAP requires firms to account for equity investments in which ownership is between 20% and 50% using
8.11 Equity Method for Minority, Active Investments. U.S. GAAP requires firms to account for equity investments in which ownership is between 20% and 50% using the equity method. Ace Corporation owns 35% of Spear Corporation during 2017. Spear Corporation reported net income of $100.4 million for 2017 and declared and paid dividends of $25 million during the year.
a. Calculate the equity income that Ace Corporation reports in 2017 related to its ownership in Spear Corporation.
b. What does Ace Corporation report in its statement of cash flows for 2017 related to its ownership in Spear Corporation?
c. Assuming that Ace Corporations balance sheet account, Investment in Spear Corporation, is $1,100 million at the beginning of 2017, what is the balance in the account at the end of 2017? Support your answers with calculations.
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