S8-3

(Learning Objective 3: Analyze and report an investment in an affiliate) Suppose on February 1, 2012, Western Motors paid $380 million for a 35% investment in Phase Motors. Assume Phase earned net income of $40 million and paid cash dividends of $20 million during 2012.

1. What method should Western Motors use to account for the investment in Phase? Give your reason.

2. Journalize these three transactions on the books of Western Motors. Show all amounts in millions of dollars and include an explanation for each entry.

3. Post to the Long-Term Investment T-account. What is its balance after all the transactions are posted?