GAAP requires firms to account for equity investments in which ownership is between 20 and 50 percent using the equity method. Ace Corporation owns 35 percent of Spear Corporation during 2010. Spear Corporation reported net income of $100.4 million for 2010 and declared and paid dividends of $25 million during the year.
a. Calculate the equity income that Ace Corporation reports in 2010 related to its ownership in Spear Corporation.
b. What does Ace Corporation report in its statement of cash flows for 2010 related to its ownership in Spear Corporation?
c. Assuming that Ace Corporation's balance sheet account, Investment in Spear Corporation, is $1,100 million at the beginning of 2010, what is the balance in the account at the end of 2010? Support your answers with calculations.