Belden, Inc., acquires 30 percent of the outstanding voting shares of Sheffield, Inc., on January 1, 2020, for $316,000, which gives Belden the ability to significantly influence Sheffield. Sheffield has a net book value of $796,000 at January 1, 2020. Sheffield's asset and liability accounts showed carrying amounts considered equal to fair values, except for a copyright whose value accounted for Belden's excess cost over book value in its 30 percent purchase. The copyright had a remaining life of 16 years at January 1, 2020. No goodwill resulted from Belden's share purchase. Sheffield reported net income of $192,000 in 2020 and $232,000 of net income during 2021. Dividends of $64,000 and $96,000 are declared and paid in 2020 and 2021, respectively. Belden uses the equity method. a. On its 2021 comparative income statements, how much income would Belden report for 2020 and 2021 in connection with the company's investment in Sheffield? b. If Belden sells its entire investment in Sheffield on January 1, 2022, for $436,000 cash, what is the impact on Belden's income? c. Assume that Belden sells inventory to Sheffield during 2020 and 2021 as follows: Cost to Price to Year Belden Sheffield 2020 $26,400 $44,000 2021 33,550 61,000 Year-End Balance (at Transfer Price) $20,000 (sold in following year) 40,000 (sold in following year)
Belden, Inc., acquires 30 percent of the outstanding voting shares of Sheffield, Inc., on January 1, 2020, for $316,000, which gives Belden the ability to significantly influence Sheffield. Sheffield has a net book value of $796,000 at January 1, 2020. Sheffield's asset and liability accounts showed carrying amounts considered equal to fair values, except for a copyright whose value accounted for Belden's excess cost over book value in its 30 percent purchase. The copyright had a remaining life of 16 years at January 1, 2020. No goodwill resulted from Belden's share purchase. Sheffield reported net income of $192,000 in 2020 and $232,000 of net income during 2021. Dividends of $64,000 and $96,000 are declared and paid in 2020 and 2021, respectively. Belden uses the equity method. a. On its 2021 comparative income statements, how much income would Belden report for 2020 and 2021 in connection with the company's investment in Sheffield? b. If Belden sells its entire investment in Sheffield on January 1, 2022, for $436,000 cash, what is the impact on Belden's income? c. Assume that Belden sells inventory to Sheffield during 2020 and 2021 as follows: Cost to Price to Year Belden Sheffield 2020 $26,400 $44,000 2021 33,550 61,000 Year-End Balance (at Transfer Price) $20,000 (sold in following year) 40,000 (sold in following year)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Belden, Inc., acquires 30 percent of the outstanding voting shares of Sheffield, Inc., on January 1, 2020, for $316,000, which gives
Belden the ability to significantly influence Sheffield. Sheffield has a net book value of $796,000 at January 1, 2020. Sheffield's asset
and liability accounts showed carrying amounts considered equal to fair values, except for a copyright whose value accounted for
Belden's excess cost over book value in its 30 percent purchase. The copyright had a remaining life of 16 years at January 1, 2020. No
goodwill resulted from Belden's share purchase.
Sheffield reported net income of $192,000 in 2020 and $232,000 of net income during 2021. Dividends of $64,000 and $96,000 are
declared and paid in 2020 and 2021, respectively. Belden uses the equity method.
a. On its 2021 comparative income statements, how much income would Belden report for 2020 and 2021 in connection with the
company's investment in Sheffield?
b. If Belden sells its entire investment in Sheffield on January 1, 2022, for $436,000 cash, what is the impact on Belden's income?
c. Assume that Belden sells inventory to Sheffield during 2020 and 2021 as follows:
Year
2020
2021
Required:
Determine the following amounts.
a.
b.
Cost to Price to
Year-End Balance
(at Transfer Price)
Belden Sheffield
$26,400 $44,000 $20,000 (sold in following year)
33,550
40,000 (sold in following year).
61,000
C.
Equity income 2020
Equity income 2021
Gain
Equity income 2021
on sale of investment
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