In early January 2020, Chi Inc., a private enterprise that applies ASPE, purchased 40% of the common shares of Washi Corp. for $410,000. Chi was now able to exercise considerable influence in decisions made by Washi’s management. Washi Corp.’s statement of financial position reported the following information at the date of acquisition:

Assets not subject to being amortized ................................................................ $205,000
Assets subject to depreciation (10 years average life remaining) ...................... 620,000
Liabilities .................................................................................................................... 115,000

Additional information:

1. Both the carrying amount and fair value are the same for non-depreciable assets and for liabilities.

2. The fair value of the assets subject to depreciation is $750,000.

3. The company depreciates its capital assets on a straight-line basis.

4. Washi reported net income of $163,000 and declared and paid dividends of $112,000 in 2020.

Instructions

a. Prepare the journal entry to record Chi’s investment in Washi Corp. Assume that any unexplained payment is goodwill.

b. Assuming Chi applies the equity method to account for its investment in Washi, prepare the journal entries to record Chi’s equity in the net income and the receipt of dividends from Washi Corp. in 2020.

c. Assume the same facts as above and in part (b), except that Washi’s net income included a loss on discontinued operations of $38,000 (net of tax). Prepare the journal entries necessary to record Chi’s equity in the net income of Washi for 2020. Ignore income taxes.

d. Assume that Chi is a publicly accountable enterprise that applies IFRS and therefore also applies the equity method to account for its associate. In addition to the information in parts (a) and (b), you are told that Washi reports an unrealized gain of $45,000 on investments accounted for using FV-OCI. If Chi Inc. reports net income of $172,400 and an unrealized gain in OCI of $10,000 on its own financial statements before including the results of its investment in Washi, determine Chi Inc.’s net income, other comprehensive income, and comprehensive income reported on its 2020 statement of comprehensive income. Neither Chi nor Washi reclassifies realized gains and losses on FV-OCI equity investments to net income. Ignore income taxes.