Boris Ltd owns 35% of the shares of its associate, Johnson Ltd. Boris Ltd applies the equity

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Question:

Boris Ltd owns 35% of the shares of its associate, Johnson Ltd. Boris Ltd applies the equity method in accounting for its investment in Johnson Ltd. Boris Ltd does not prepare consolidated financial statements.

Johnson Ltd’s after tax profit for the year ended 30 June 2022 was $118,000. During this period, Johnson Ltd declared an $8,000 dividend on 30 June 2022, and paid an interim dividend of $12,000.

The following transactions have occurred between Boris Ltd and Johnson Ltd:

1) In June 2021, Johnson Ltd sold inventories to Boris Ltd for $18,000. These inventories had cost Johnson Ltd $12,000. At 30 June 2021, these inventories remained unsold by Boris Ltd. However, it was all sold by Boris Ltd before 30 June 2022.

2) In March 2022, Boris Ltd sold inventories to Johnson Ltd at a before-tax profit of $8,400. Johnson Ltd sold only $3,400 of these before 30 June 2022.

The tax rate is 30%.

Required

a) Calculate the amount of Boris’s share of Johnson Ltd’s adjusted profit for the year ended 30 June 2022, identifying the items needed in the calculation.

b) Prepare journal entries for the year ended 30 June 2022 in the journal of Boris Ltd to account for the investment in Johnson Ltd. Exclude journal narrations.