3A (5 marks)

On 1 July 2016 Spring Ltd acquired 40% of the shares of Summer Ltd for $63,200 cash. At this date all the identifiable assets and liabilities of Summer Ltd were recorded at amounts equal to fair value. The equity of Summer Ltd consisted of:

$

Share Capital

125 000

Retained Earnings

33 000

At 1 July 2016, the identifiable assets and liabilities of Summer Ltd were recorded at fair value.

Additional information:

For the year ending 30 June 2017 Summer Ltd recorded an after-tax profit of $280 000 and paid

a dividend of $60 000 from the profit earned in the year ending 30 June 2017.

For the year ending 30 June 2018, Summer Ltd records an after-tax loss of $50 000. On 30 June

2018, Summer Ltd revalued an item of equipment upwards by $80 000 (assume a 30% tax rate).

Required: Prepare journal entries in the book of Spring Ltd using equity method for financial years ending 2017 and 2018.