On July 1, 2019, Killearn Company acquired 99,000 of the outstanding shares of Shaun Company for $19 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 $6 million and liabilities of $329,600. At the time, Shaun held equipment appraised at $386,400 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 $1,220,000. 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 $595,000 in 2019, $626,600 in 2020, and $678,400 in 2021. In addition, Killearn sold inventory costing $142,800 to Shaun for $238,000 during 2020. Shaun resold $90,000 of this inventory during 2020 and the remaining $148,000 during 2021.

Required:

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

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

A. Equity income 2019:

Equity income 2020:

Equity income 2021:

B. Investment in Shaun: