On January 1, 2019, Halstead, Inc., purchased 71,000 shares of Sedgwick Company common stock for $1,485,000,...

On January 1, 2019, Halstead, Inc., purchased 71,000 shares of Sedgwick Company common stock for $1,485,000, giving Halstead 25 percent ownership and the ability to apply significant influence over Sedgwick. Any excess of cost over book value acquired was attributed solely to goodwill.

Sedgwick reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout these years. Dividends are declared and paid in the same period.

	Net Income	Annual Cash Dividends (paid quarterly)
2019	$407,000	$124,000
2020	393,000	159,000
2021	606,000	149,000

On July 1, 2021, Halstead sells 11,360 shares of this investment for $27 per share, thus reducing its interest from 25 to 21 percent, but maintaining its significant influence.

Determine the amounts that would appear on Halstead’s 2021 income statement relating to its ownership and partial sale of its investment in Sedgwick’s common stock. (Round your intermediate calculations to the nearest whole number.)

As total income accrual (no unearned gains):

As gains on sales of shares:

Expert Solution

Income accrual for 2021 (Equity Method)

25% *$606000 for 1/2 year	$ 75,750
21% *$606000 for 1/2 year	$ 63,630
Income acccrual total (No deffered gross profit no amortisation)	$ 139,380
Gain on sale (as per working -1)	$ 39,300
Total Income statement effect 2018	$ 178,680

Working -1
Gain on sale of 11,360 Sedgwick's shares
Cost of Initial acquisition -2019	$ 1,485,000
25% income accrual-2019	$ 101,750
25% dividend -2019	$ (31,000)
25% income accrual-2020	$ 98,250
25% dividend -2020	$ (39,750)
25% income accrual for half year 2021	$ 75,750
25% dividend for half year 2021	$ (18,625)
On july 1,2021 book value of 71,000 shares	$ 1,671,375

Cash proceeds from sale of shares (11,360*$27)	$ 306,720
Less: book value of shares sold (11,360/71000*$1671375)	$ 267,420
Gain on sale	$ 39,300

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ekkarill92 answered 2 years ago

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