Question: Question 1: Significant Influence Investments (Chapter 2) - 19 marks P Corp. paid $500,000 for a 40% interest in S Limited on January 1, Year

Question 1: Significant Influence Investments (Chapter 2) - 19 marks

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%. Assume that P uses the cost method. Prepare all journal entries necessary to account for P's investment for Year 6

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