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

$$

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

$$

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

$$

Required:

$($a$)$ Assume that Pender reports its investment using the equity method.

$$

$($i$)$ Prepare all journal entries necessary to account for Pender$$s investment for Year $6.($If no entry is required for a transaction$/$event$,$ select $"$No journal entry required" in the first account field.$)$

$$

$$

$($ii$)$ Determine the correct balance in Pender$$s investment account at December $31,$ Year $6.($Omit $ sign in your response.$)$

$$

Balance in Pender$$s investment account$$$

$$

$($iii$)$ Prepare an income statement for Pender for Year $6.($Negative amounts and deductibles should be indicated by a minus sign. Omit $ sign in your response.$)$

$$

Pender Corp

Income statement

Year ended December $31,$ Year $6($Click to select$)$ Operating expenses$$ Income tax expense$$ Net income before discontinued operations$$ Disc. Operations $-$ Equity method loss$$ Comprehensive income$$ Sales$$ Income before income tax$$$ $($Click to select$)$ Operating expenses$$ Disc. Operations $-$ Equity method loss$$ Comprehensive income$$ Income tax expense$$ Equity method income$$ Sales$$ Income before income tax$$ Net income before discontinued operations$($Click to select$)$ Comprehensive income$$ Income before income tax$$ Income tax expense$$ Net income before discontinued operations$$ Disc. Operations $-$ Equity method loss$$ Operating expenses$$ Equity method income$$ Sales$$Income before income tax$($Click to select$)$ Income before income tax$$ Income tax expense$$ Sales$$ Equity method income$$ Operating expenses$$ Net income before discontinued operations$$ Disc. Operations $-$ Equity method loss$$ Comprehensive income$$Net income before discontinued operations$($Click to select$)$ Disc. Operations $-$ Equity method loss$$ Net income before discontinued operations$$ Sales$$ Equity method income$$ Operating expenses$$ Income before income tax$$ Income tax expense$$ Comprehensive income$($Click to select$)$ Profit$$ Loss$$$

$$

$($b$)$ Assume that Pender uses the cost method.

$$

$($i$)$ Prepare all journal entries necessary to account for Pender$$s investment for Year $6.($If no entry is required for a transaction$/$event$,$ select $"$No Journal Entry Required" in the first account field.$)$

$$

$$

$($ii$)$ Determine the correct balance in Pender$$s investment account at December $31,$ Year $6.($Omit $ sign in your response.$)$

$$

Balance in Pender$$s investment account$$$

$$

$($iii$)$ Prepare an income statement for Pender for Year $6.($Negative amounts and deductibles should be indicated by a minus sign. Omit $ sign in your response.$)$

$$

Pender Corp

Income statement

Year ended December $31,$ Year $6($Click to select$)$ Operating expenses$$ Income before income tax$$ Income tax expense$$ Equity method income$$ Net income before discontinued operations$$ Sales$$ Comprehensive income$$ Disc. Operations $-$ Equity method loss$$$ $($Click to select$)$ Disc. Operations $-$ Equity method loss$$ Sales$$ Income before income tax$$ Operating expenses$$ Net income before discontinued operations$$ Income tax expense$$ Comprehensive income$$ Dividend income$($Click to select$)$ Equity method income$$ Operating expenses$$ Comprehensive income$$ Disc. Operations $-$ Equity method loss$$ Income tax expense$$ Sales$$ Net income before discontinued operations$$ Income before income tax$$Income before income tax$($Click to select$)$ Income before income tax$$ Income tax expense$$ Sales$$ Equity method income$$ Operating expenses$$ Net income before discontinued operations$$ Disc. Operations $-$ Equity method loss$$ Comprehensive income$($Click to select$)$ Profit$$ Loss$$$

$$

$($c$-1)$ Compute return on investment under the cost method and return on investment under the equity method. $($Round your answers to $2$ decimal places. Omit $\%$ sign in your response.$)$

$$

$$Cost method return on investment $\%$Equity method return on investment $\%$

$$

$($c$-2)$ Which reporting method would Pender want to use if its bias is to report the highest possible return on investment to users of its financial statements?

$$

multiple choice $12$

Cost method

Equity method