Albert Company has an investment in the voting shares of Prince Ltd. On December 31, Year 5, Prince reported a net income of $860,000 and declared dividends of $200,000.
During Year 5, Albert had sales to Prince of $915,000, and Prince had sales to Albert of $500,000. On December 31, Year 5, the inventory of Albert contained an after-tax intercompany profit of $40,000, and the inventory of Prince contained an after-tax intercompany profit of $72,000.
On January 1, Year 4, Albert sold equipment to Prince and recorded an after- tax profit of $120,000 on the transaction. The equipment had a remaining useful life of five years on this date. Albert uses the equity method to account for its investment in Prince.
Prepare Albert’s Year 5 equity method journal entries under each of the following two assumptions:
(a) Albert owns 64% of Prince, and Prince is a subsidiary.
(b) Albert owns 30% of Prince, and Prince is a joint venture.