Reference no: EM132519878

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's reports its investment using the equity method.

Question 1: Prepare journal entries necessary to account for P's investment for Year 6.

Question 2: Determine the correct balance in P's investment account at December 31, Year 6.

Question 3: Prepare statement of comprehensive income for P for Year 6. Use an appropriate 3-line title.

Assume that P uses the cost method.

Question 4: Prepare journal entries necessary to account for P's investment for Year 6.