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?

Question

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The Answer of 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?

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