Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On July 1, 2019, Killearn Company acquired 76,000 of the outstanding shares of Shaun Company for $18 per share. This acquisition gave Killearn a 25

On July 1, 2019, Killearn Company acquired 76,000 of the outstanding shares of Shaun Company for $18 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, 2019, the investee had assets with a book value of $4 million and liabilities of $414,400. At the time, Shaun held equipment appraised at $431,200 more than 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 $1,160,000. 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.

Shaun's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shaun's income, earned evenly throughout each year, was $570,000 in 2019, $604,200 in 2020, and $662,000 in 2021.

In addition, Killearn sold inventory costing $131,400 to Shaun for $219,000 during 2020. Shaun resold $128,000 of this inventory during 2020 and the remaining $91,000 during 2021.

Required:

  1. Determine the equity income to be recognized by Killearn during each of these years.

  2. Compute Killearns investment in Shaun Companys balance as of December 31, 2021.

(For all requirements, enter your answers in whole dollars and not in millions.)

A. Equity income 2019

A1. Equity income 2020

A2. Equity income 2021

B. Investment in Shaun

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions

Question

What is the relationship between humans?

Answered: 1 week ago

Question

What is the orientation toward time?

Answered: 1 week ago