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

question 81

Essay

Dice Inc. owns 40% of the outstanding shares of Spalding Corp., an investment accounted for by the equity method. During 2011, Dice earned 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 2011?
(B.) If Dice expects to sell its interest in Spalding in the near future, how does that decision change the 2011 income tax expense journal entry?

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Definitions:

Iberian Peninsula

A European peninsula located in the southwest corner of Europe, occupied by Spain and Portugal.

Portuguese

Refers to something of, from, or related to Portugal, including its culture, people, or language.

Western Atlantic Trade

A historical trading network across the Atlantic Ocean, primarily involving European countries and their American and African colonies, facilitating the exchange of goods, slaves, and resources from the 16th to the 19th centuries.

Spanish Conquistadors

Explorers and soldiers from Spain who, during the 16th century, conquered large portions of the Americas, including the Aztec and Inca empires.