Swan Products Inc. owns 25 percent of the common stock of Computech Computer Company, purchased December \(28,20 \times 3\), at book value. During the three years subsequent to the acquisition of its stock by Swan Products, Computech reported the following net income and dividends:

Swan Products has an effective income tax rate of 40 percent. All dividends received by Swan Products from Computech qualify for the 80 percent dividend deduction.

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a. Compute the amount of income tax expense that Swan Products should have reported in its income statement for each of the three years with respect to its investment in Computech assuming it reports its investment using (1) the cost method and (2) the equity method.

b. Present all journal entries related to its investment in Computech, including income tax effects, that should have been recorded by Swan Products for each of the three years, assuming Swan Products accounts for its investment using the cost method.

c. Present all journal entries related to its investment in Computech, including income tax effects. that should have been recorded by Swan Products for each of the three years, assuming Swan Products accounts for its investment using the equity method.

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20X4 20X5 20X6 Net Income Dividends $20,000 $ 8,000 $40,000 4,000 10,000 12,000