In: Accounting
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:
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 |
if any doubt please mention in comment