On January 2, 2011, Miller Properties paid $19 million for 1 million shares of Marlon Company's 6 million outstanding common shares. Miller's CEO became a member of Marlon's board of directors during the first quarter of 2011.
The carrying amount of Marlon's net assets was $66 million. Miller estimated the fair value of those net assets to be the same except for a patent valued at $24 million above cost. The remaining amortization period for the patent is 10 years.
Marlon reported earnings of $12 million and paid dividends of $6 million during 2011. On December 31, 2011, Marlon's common stock was trading on the NYSE at $18.50 per share.

Required:

1. When considering whether to account for its investment in Marlon under the equity method, what criteria should Miller's management apply?

2. Assume Miller accounts for its investment in Marlon using the equity method. Ignoring income taxes, determine the amounts related to the investment to be reported in its 2011:
a. Income statement.
b. Balance sheet.
c. Statement of cash flows.