On July 1, 2019, Killearn Company acquired 105,000 of the outstanding shares of Shaun Company for $19 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, 2019, the investee had assets with a book value of $5 million and liabilities of $1,101,500. At the time, Shaun held equipment appraised at $280,000 more than 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 $650,000. 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 $640,000 in 2019, $670,600 in 2020, and $735,200 in 2021. In addition, Killearn sold inventory costing $121,800 to Shaun for $203,000 during 2020. Shaun resold $104,500 of this inventory during 2020 and the remaining $98,500 during 2021. Required: a. Determine the equity income to be recognized by Killearn during each of these years. b. Compute Killearn's investment in Shaun Company's balance as of December 31, 2021. (For all requirements, enter your answers in whole dollars and not in millions.) a. Equity income 2019 Equity income 2020 Equity income 2021 Investment in Shaun b.
On July 1, 2019, Killearn Company acquired 105,000 of the outstanding shares of Shaun Company for $19 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, 2019, the investee had assets with a book value of $5 million and liabilities of $1,101,500. At the time, Shaun held equipment appraised at $280,000 more than 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 $650,000. 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 $640,000 in 2019, $670,600 in 2020, and $735,200 in 2021. In addition, Killearn sold inventory costing $121,800 to Shaun for $203,000 during 2020. Shaun resold $104,500 of this inventory during 2020 and the remaining $98,500 during 2021. Required: a. Determine the equity income to be recognized by Killearn during each of these years. b. Compute Killearn's investment in Shaun Company's balance as of December 31, 2021. (For all requirements, enter your answers in whole dollars and not in millions.) a. Equity income 2019 Equity income 2020 Equity income 2021 Investment in Shaun b.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On July 1, 2019, Killearn Company acquired 105,000 of the outstanding shares of Shaun Company for $19 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, 2019, the investee had assets with a book value of $5 million and liabilities of $1,101,500. At the time, Shaun held
equipment appraised at $280,000 more than 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 $650,000. 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 $640,000 in 2019, $670,600 in 2020, and $735,200 in 2021.
In addition, Killearn sold inventory costing $121,800 to Shaun for $203,000 during 2020. Shaun resold $104,500 of this inventory
during 2020 and the remaining $98,500 during 2021.
Required:
a. Determine the equity income to be recognized by Killearn during each of these years.
b. Compute Killearn's investment in Shaun Company's balance as of December 31, 2021.
(For all requirements, enter your answers in whole dollars and not in millions.)
a. Equity income 2019
Equity income 2020
Equity income 2021
Investment in Shaun
b,
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