Pender Corp. paid $$325,000$ for a $30\%$ interest in Saltspring Limited on January $1,$ Year $6.$ During Year $6,$ Saltspring paid dividends of $$117,000$ and reported profit as follows:

Profit before discontinued operations $$374,000$

Discontinued operations loss $($net of tax$)(35,100)$

Profit $$338,900$

Penders profit for Year $6$ is calculated on $$1,053,000$ in sales, expenses of $$117,000,$ income tax expense of $$374,400,$ and its investment income from Saltspring. Both companies have an income tax rate of $40\%.$

Required:

$($a$)$ Assume that Pender reports its investment using the equity method.

$($i$)$ Prepare all journal entries necessary to account for Penders investment for Year $6.($If no entry is required for a transaction$/$event$,$ select $"$No journal entry required" in the first account field.$)$

$($ii$)$ Determine the correct balance in Penders investment account at December $31,$ Year $6.($Omit $ sign in your response.$)$

Balance in Penders investment account $

$($iii$)$ Prepare an income statement for Pender for Year $6.($Negative amounts and deductibles should be indicated by a minus sign. Omit $ sign in your response.$)$

Pender Corp

Income statement

Year ended December $31,$ Year $6$

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$

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$($Click to select$)$

Income before income tax

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Net income before discontinued operations

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$

$($b$)$ Assume that Pender uses the cost method.

$($i$)$ Prepare all journal entries necessary to account for Penders investment for Year $6.($If no entry is required for a transaction$/$event$,$ select $"$No Journal Entry Required" in the first account field.$)$

$($ii$)$ Determine the correct balance in Penders investment account at December $31,$ Year $6.($Omit $ sign in your response.$)$

Balance in Penders investment account $

$($iii$)$ Prepare an income statement for Pender for Year $6.($Negative amounts and deductibles should be indicated by a minus sign. Omit $ sign in your response.$)$

Pender Corp

Income statement

Year ended December $31,$ Year $6$

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$

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$($Click to select$)$

Income before income tax

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$

$($c$-1)$ Compute return on investment under the cost method and return on investment under the equity method. $($Round your answers to $2$ decimal places. Omit $\%$ sign in your response.$)$

Cost method return on investment

$\%$

Equity method return on investment

$\%$

$($c$-2)$ Which reporting method would Pender want to use if its bias is to report the highest possible return on investment to users of its financial statements?

multiple choice $12$

Cost method

Equity method