Panex Owns 100% of the Outstanding Common Stock of Sanex

Essay

Panex owns 100% of the outstanding common stock of Sanex, a foreign subsidiary located in a country having a 20% income tax rate and a 5% dividend withholding tax. For 2006, Sanex reported net income of $600,000 and paid dividends of $300,000. Concerning the 2006 undistributed earnings of $300,000, Panex's intent is to have Sanex (a) distribute $200,000 as dividends when cash becomes available and (b) reinvest $100,000 indefinitely (to be used for internal expansion). Assume a 40% U.S. income tax rate. Panex uses the equity method of accounting.
Required:
Prepare all journal entries Panex should record for 2006 relating to its investment in Sanex.