Cardinal Concrete acquired \(20 \%\) of the outstanding common stock of Edra, Inc., on January 1,1996 , by paying \(\$ 1,200,000\) for 50,000 shares. Edra declared and paid an \(\$ 0.80\) per share cash dividend on June 30 and again on December 31, 1996. Edra reported net income of \(\$ 700,000\) for the year.

\section*{Instructions}

(a) Prepare the journal entries for Cardinal Concrete for 1996 assuming Cardinal cannot exercise significant influence over Edra. (Use the cost method.)

(b) Prepare the journal entries for Cardinal Concrete for 1996, assuming Cardinal can exercise significant influence over Edra. (Use the equity method).

(c) The board of directors of Cardinal Concrete is confused about the differences between the cost and equity methods. Prepare a memorandum for the board that (1) explains each method and (2) shows, in tabular form, the account balances under each method at December 31, 1996.