Problem 22-11

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On January 1, 2017, Wildhorse Inc. paid $689,000 for 11,000 shares of Sheffield Company's voting common stock, which was a 10% interest in Sheffield. At that date, the net assets of Sheffield totaled $5,888,000. The fair values of all of Sheffield's identifiable assets and liabilities were equal to their book values. Wildhorse does not have the ability to exercise significant influence over the operating and financial policies of Sheffield. Wildhorse received dividends of $1.40 per share from Sheffield on October 1, 2017. Sheffield reported net income of $555,000 for the year ended December 31, 2017.

On July 1, 2018, Wildhorse paid $2,321,000 for 33,000 additional shares of Sheffield Company's voting common stock which represents a 30% investment in Sheffield. The fair values of all of Sheffield's identifiable assets net of liabilities were equal to their book values of $6,442,000. As a result of this transaction, Wildhorse has the ability to exercise significant influence over the operating and financial policies of Sheffield. Wildhorse received dividends of $1.80 per share from Sheffield on April 1, 2018, and $2.40 per share on October 1, 2018. Sheffield reported net income of $662,000 for the year ended December 31, 2018, and $346,000 for the 6 months ended December 31, 2018.

(For both purchases, assume any excess of cost over book value is due to goodwill.)

(a)Schedule the income or loss before income taxes for the year ended December 31, 2017, that Wildhorse should report from its investment in Sheffield in its income statement issued in March 2018.

(b)During March 2019, Wildhorse issues comparative financial stat