Black paid $300,000 for 20,000 (25%) of the outstanding shared of White Limited on January 1, Year-5. During Year-5, White paid dividends of $50,000 and reported other comprehensive income (OCI) of $20,000 and profit as follows:

Profit before discontinued operations $350,000

Discontinued operations loss (net of tax) (30,000)

Profit $320,000

Black’s profit for Year-5 is calculated on $1,000,000 in sales, expenses of $ 150,000, income tax expenses of $375,000, and its investment income from White. Both companies have an income tax rate of 40%.

Required:

1) Assume that Black is a public company, has significant influence over White and reports its investment using the equity method to account for this investment:

a. Prepare all the journal entries necessary to account for Black’s investment for Year-5.

b. Determine the correct balance in Black’s investment account at December 31, Year-5.

c. Prepare an income statement for Black for Year-5.

2) Assume Black is a private company, has significant influence and chooses to use the cost method to account for its investment in White:

a. Prepare all the journal entries necessary to account for Black’s investment for Year-5

b. Determine the correct balance in Black’s investment account at December 31, Year-5.

c. Prepare an income statement for Black for year-5.