Question
On July 1, 2013, Killearn Company acquired 110,000 of the outstanding shares of Shaun Company for $14 per share. This acquisition gave Killearn a 25
On July 1, 2013, Killearn Company acquired 110,000 of the outstanding shares of Shaun Company for $14 per share. This acquisition gave Killearn a 25 percent ownership of Shaun and allowed Killearn to significantly influence the investees decisions. |
As of July 1, 2013, the investee had assets with a book value of $5 million and liabilities of $620,000. At the time, Shaun held equipment appraised at $308,000 above book value; it was considered to have a seven-year remaining life with no salvage value. Shaun also held a copyright with a five-year remaining life on its books that was undervalued by $1,208,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Killearn applies the equity method for its investment in Shaun. |
Shauns policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shauns income, earned evenly throughout each year, was $591,000 in 2013, $634,400 in 2014, and $682,400 in 2015. |
In addition, Killearn sold inventory costing $98,400 to Shaun for $164,000 during 2014. Shaun resold $117,000 of this inventory during 2014 and the remaining $47,000 during 2015. A) Determine the equity income to be recognized by Killearn for 2013, 2014, and 2015. B) Compute Killearns investment in Shaun Companys balance as of December 31, 2015.
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started