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P Corp. paid $500,000 for a 40% interest in S Limited on January 1, Year 6. This purchase gives P significant influence in S. During
P Corp. paid $500,000 for a 40% interest in S Limited on January 1, Year 6. This purchase gives P significant influence in S.
During Year 6, S paid dividends of $100,000 and reported profit as follows:
- Profit before discontinued operations $385,000
- Discontinued Operations loss (net of tax) (30,000)
- OCI (unrealized gain on FV-OCI investment) 20,000
- Comprehensive Income $375,000
P's profit for Year 6 consisted of $1,200,000 in sales, operating expenses of $500,000, income tax expense of $210,000, and its investment income from S. Both companies have an income tax rate of 30%.
Required:
(a) Assume that P reports its investment using the equity method.
- Prepare journal entries necessary to account for P's investment for Year 6. (3 marks)
- Determine the correct balance in P's investment account at December 31, Year 6. (3 marks)
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