Reference no: EM132538040

Question - 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 - Assume that P reports its investment using the equity method.

Prepare journal entries necessary to account for P's investment for Year 6.

Determine the correct balance in P's investment account at December 31, Year 6.