Question 2

Linden Corp. paid $234,000 for a 30% interest in Pender Limited on January 1, Year 6. During Year 6, Pender paid dividends of $100,000 and reported profit as follows:

Profit before discontinued operations	$288,000
Discontinued operations loss (net of tax)	(30,000)
Profit	$258,000

Lindens profit for Year 6 is calculated on $900,000 in sales, expenses of $400,000, income tax expense of $200,000, and its investment income from Pender. Both companies have an income tax rate of 40%.

Required:

Assume that Linden reports its investment using the equity method.

Prepare all journal entries necessary to account for Lindens investment for Year 6. (6 marks)

Determine the correct balance in Lindens investment account at December 31, Year 6. (3 marks)