Pender Corp. paid $340,000 for a 30% Interest in Saltspring Limited on January 1, Year 6. During Year 6. Saltspring paid dividends of $120,000 and reported profit as follows: Profit before discontinued operations Discontinued operations loss (net of tax) Profit $389,000 (36,eee) $353, eee Pender's profit for Year 6 is calculated on $1,080,000 in sales, expenses of $120,000, Income tax expense of $384,000, 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. (1) Prepare all journal entries necessary to account for Pender's Investment for Year 6. (If no entry is required for a transaction/event, select "No journal entry required" In the first account field.) View transaction list View journal entry worksheet No Transaction General Journal Debit Credit A 01 340.000 Investment in Saltspring Cash 340,000 B 02 Cash 38,000 Investment in Saltspring 36,000 0 03 105.900 Investment in Saltspring Equity method loss-discontinued operations OCI-equity method income 10.800 116.700 (II) Determine the correct balance in Pender's Investment account at December 31, Year 6. Balance in Pender's Investment account $409900 (II) 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 Sales Comprehensive income V Operating expenses Income before income tax Income tax expense Net income before discontinued operations Disc. Operations - Equity method loss Profit $ (b) Assume that Pender uses the cost method. (1) Prepare all journal entries necessary to account for Pender's Investment for Year 6. (If no entry is required for a transactlon/event, select "No Journal Entry Required" in the first account fleld.) View transaction list Journal entry worksheet Record 30% investment in Saltspring. Note: Enter debits before credits. Transaction General Journal Debit Credit 01 Record entry Clear entry View general journal (b) Assume that Pender uses the cost method. (1) Prepare all journal entries necessary to account for Pender's Investment for Year 6. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet Record dividends received. Note: Enter debits before credits. Transaction General Journal Debit Credit 02 Record entry Clear entry View general journal (b) Assume that Pender uses the cost method. (1) Prepare all journal entries necessary to account for Pender's Investment for Year 6. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet Record 30% of Saltspring's profit and discontinued operations. Note: Enter debits before credits. Transaction General Journal Debit Credit 03 Record entry Clear entry View general journal (II) Determine the correct balance in Pender's Investment account at December 31, Year 6. Balance in Pender's Investment account (III) Prepare an income statement for Pender for Year 6. (Negative amounts and deductibles should be indicated by a minus sign. Omlt $ sign in your response.) Pender Corp Income statement Year ended December 31, Year 6 $ (Click to select) (Click to select) Click to select) Income before income tax Click to select) (Click to select) (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.) Cost method return on investment Equity method return on investment (c-2) Which reporting method would Pender want to use if its blas is to report the highest possible return on Investment to users of Its financial statements? Cost method Equity method
