Dice Inc Owns 40% of the Outstanding Shares of Spalding Corp

question 110

Essay

Dice Inc. owns 40% of the outstanding shares of Spalding Corp., an investment accounted for by the equity method. During 2021, Dice had operating income (not including income from its investment in Spalding) of $370,000. For this same period, Spalding reported net income of $160,000 and paid cash dividends of $60,000. Dice has an effective income tax rate of 35% and anticipates holding its investment in Spalding for an indefinite period.Required:(A.) What income tax expense journal entry would Dice Inc. record at the end of 2021?(B.) If Dice expects to sell its interest in Spalding in the near future, how does that decision change the 2021 income tax expense journal entry?

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Definitions:

Organization Meeting

The initial meeting where the structure of a new organization is decided, officers are elected, and bylaws are adopted.

Preincorporation Contracts

Agreements made by the founding members of a corporation on its behalf before the company is formally incorporated.

Articles of Incorporation

A set of formal documents filed with a state governmental authority to legally document the creation of a corporation.

Bylaws

Written rules and regulations governing the operations of a corporation or other formal organizations.