Question
In: Accounting
On July 1, 2016, Killearn Company acquired 84,000 of the outstanding shares of Shaun Company for...
On July 1, 2016, Killearn Company acquired 84,000 of the outstanding shares of Shaun Company for $20 per share. This acquisition gave Killearn a 25 percent ownership of Shaun and allowed Killearn to significantly influence the investee's decisions.
As of July 1, 2016, the investee had assets with a book value of $5 million and liabilities of $266,400. At the time, Shaun held equipment appraised at $476,000 above 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 $1,212,000. 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 $645,000 in 2016, $679,800 in 2017, and $723,000 in 2018.
In addition, Killearn sold inventory costing $139,200 to Shaun for $232,000 during 2017. Shaun resold $101,500 of this inventory during 2017 and the remaining $130,500 during 2018.
1.Determine the equity income to be recognized by Killearn during each of these years.
2.Compute Killearn's investment in Shaun Company's balance as of December 31, 2018.
Solutions
Expert Solution
1.
Calculate the equity income to be recognized by Killearn during each of these years as follows:
Above figures have been calculated in the following manner:
Note: Equity income for 2016 has been multiplied by 0.5 because during 2016 Killearn held the ownership in Shaun for 6 months only.
2.
Compute Killearn's investment in Shaun Company's balance as of December 31, 2018, as follows:
| Purchase price of 84000 shares | 1680000 |
| Add: Equity income recognized in 2016 | 41825 |
| Less: Dividends received in 2016 (84,000 x $1) | -84000 |
| Killearn's investment in Shaun Company's balance as of December 31, 2016 | 1637825 |
| Add: Equity income recognized in 2017 | 92350 |
| Less: Dividends received in 2017 (84,000 x $1 x 2) | -168000 |
| Killearn's investment in Shaun Company's balance as of December 31, 2017 | 1562175 |
| Add: Equity income recognized in 2018 | 103150 |
| Less: Dividends received in 2018 (84,000 x $1 x 2) | -168000 |
| Killearn's investment in Shaun Company's balance as of December 31, 2018 | 1497325 |
ekkarill92 answered 1 year agoRelated Solutions
On July 1, 2016, Killearn Company acquired 109,000 of the outstanding shares of Shaun Company for...
On July 1, 2016, Killearn Company acquired 109,000 of the
outstanding shares of Shaun Company for $21 per share. This
acquisition gave Killearn a 40 percent ownership of Shaun and
allowed Killearn to significantly influence the investee's
decisions.
As of July 1, 2016, the investee had assets with a book value of
$5 million and liabilities of $344,500. At the time, Shaun held
equipment appraised at $210,000 above book value; it was considered
to have a seven-year remaining life with...
On July 1, 2016, Killearn Company acquired 103,000 of the outstanding shares of Shaun Company for...
On July 1, 2016, Killearn Company acquired 103,000 of the
outstanding shares of Shaun Company for $21 per share. This
acquisition gave Killearn a 40 percent ownership of Shaun and
allowed Killearn to significantly influence the investee's
decisions. As of July 1, 2016, the investee had assets with a book
value of $6 million and liabilities of $1,468,500. At the time,
Shaun held equipment appraised at $140,000 above book value; it was
considered to have a seven-year remaining life with...
On July 1, 2016, Killearn Company acquired 136,000 of the outstanding shares of Shaun Company for...
On July 1, 2016, Killearn Company acquired 136,000 of the
outstanding shares of Shaun Company for $15 per share. This
acquisition gave Killearn a 25 percent ownership of Shaun and
allowed Killearn to significantly influence the investee's
decisions.
As of July 1, 2016, the investee had assets with a book value of
$7 million and liabilities of $456,800. At the time, Shaun held
equipment appraised at $319,200 above book value; it was considered
to have a seven-year remaining life with...
On July 1, 2016, Killearn Company acquired 88,000 of the outstanding shares of Shaun Company for...
On July 1, 2016, Killearn Company acquired 88,000 of the
outstanding shares of Shaun Company for $13 per share. This
acquisition gave Killearn a 25 percent ownership of Shaun and
allowed Killearn to significantly influence the investee’s
decisions.
As of July 1, 2016, the investee had assets with a book value of
$3 million and liabilities of $74,400. At the time, Shaun held
equipment appraised at $364,000 above book value; it was considered
to have a seven-year remaining life with...
On July 1, 2016, Killearn Company acquired 120,000 of the outstanding shares of Shaun Company for...
On July 1, 2016, Killearn Company acquired 120,000 of the
outstanding shares of Shaun Company for $15 per share. This
acquisition gave Killearn a 20 percent ownership of Shaun and
allowed Killearn to significantly influence the investee's
decisions.
As of July 1, 2016, the investee had assets with a book value of
$7 million and liabilities of $148,000. At the time, Shaun held
equipment appraised at $581,000 above book value; it was considered
to have a seven-year remaining life with...
On July 1, 2016, Killearn Company acquired 136,000 of the outstanding shares of Shaun Company for...
On July 1, 2016, Killearn Company acquired 136,000 of the
outstanding shares of Shaun Company for $15 per share. This
acquisition gave Killearn a 25 percent ownership of Shaun and
allowed Killearn to significantly influence the investee's
decisions.
As of July 1, 2016, the investee had assets with a book value of
$7 million and liabilities of $456,800. At the time, Shaun held
equipment appraised at $319,200 above book value; it was considered
to have a seven-year remaining life with...
On July 1, 2016, Killearn Company acquired 142,000 of the outstanding shares of Shaun Company for...
On July 1, 2016, Killearn Company acquired 142,000 of the
outstanding shares of Shaun Company for $15 per share. This
acquisition gave Killearn a 40 percent ownership of Shaun and
allowed Killearn to significantly influence the investee's
decisions.
As of July 1, 2016, the investee had assets with a book value of
$5 million and liabilities of $890,000. At the time, Shaun held
equipment appraised at $245,000 above book value; it was considered
to have a seven-year remaining life with...
osada Company acquired 7,000 of the 10,000 outstanding shares of Sabathia Company on January 1, 2016,...
osada Company acquired 7,000 of the 10,000 outstanding shares of
Sabathia Company on January 1, 2016, for $840,000. The subsidiary’s
total fair value was assessed at $1,200,000 although its book value
on that date was $1,130,000. The $70,000 fair value in excess of
Sabathia’s book value was assigned to a patent with a five-year
remaining life.
On January 1, 2018, Posada reported a $1,085,000 equity method
balance in the Investment in Sabathia Company account. On October
1, 2018, Posada sells...
osada Company acquired 7,000 of the 10,000 outstanding shares of Sabathia Company on January 1, 2016,...
osada Company acquired 7,000 of the 10,000 outstanding shares of
Sabathia Company on January 1, 2016, for $840,000. The subsidiary’s
total fair value was assessed at $1,200,000 although its book value
on that date was $1,130,000. The $70,000 fair value in excess of
Sabathia’s book value was assigned to a patent with a five-year
remaining life. On January 1, 2018, Posada reported a $1,085,000
equity method balance in the Investment in Sabathia Company
account. On October 1, 2018, Posada sells...
On January 1, 2016, Aronsen Company acquired 80 percent of Siedel Company’s outstanding shares. Siedel had...
On January 1, 2016,
Aronsen Company acquired 80 percent of Siedel Company’s outstanding
shares. Siedel had a net book value on that date of $410,000:
common stock ($10 par value) of $200,000 and retained earnings of
$210,000.
Aronsen paid $656,000
for this investment. The acquisition-date fair value of the 20
percent noncontrolling interest was $164,000. The excess fair value
over book value associated with the acquisition was used to
increase land by $350,000 and to recognize copyrights (12-year
remaining life)...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Parallel Arrays This question is in MindTap Cengage Summary In this lab, you use what you...
- 5. You have invested 30 percent of your portfolio in Jacob, Inc., 40 percent is Bella...
- JAVA Write a test program that prompts the user to enter a series of integers and...
- (2) Cite an example on how organizations like Google, Facebook, Youtube etc collect data for image...
- The legal landscape is perpetually changing. Psychologists must remain abreast of these changes to avoid potentially...
- We are evaluating a project that costs $1.68 million, has a six-year life, and has no...
- In C++ Having call-by-reference allows one to use storeback parameters, i.e., parameters whose values are transmitted...
ADVERTISEMENT