Dotes, Inc

question 16

Essay

Dotes, Inc. owns 40% of Abner Co. Dotes accounts for its investment using the equity method. Abner follows a policy of declaring and paying dividends equal to 30% of its income each year. During the current year, Abner reported net income of $216,000. Dotes has an effective income tax rate of 32%.Required:What journal entry would Dotes record at the end of the current year for income taxes relating to the investment in Abner? Assume the investment is to be held for an indefinite time and that all amounts are to be rounded to the nearest dollar.

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Definitions:

Tariff

A tax imposed by a government on goods and services imported from other countries, often used to protect domestic industries from foreign competition.

Producer Surplus

The difference between the amount producers are willing to accept for a good or service and the actual amount they receive, reflecting profits.

Deadweight Loss

A loss of economic efficiency that can occur when equilibrium for a good or service is not achieved or is unachievable.

Tariff Revenue

The income generated by a government from imposing taxes on imported goods.