On July 1, 2022, Burrough Company acquired 105,000 of the outstanding shares of Carter Company for $19 per share. This acquisition gave Burrough a 40 percent ownership of Carter and allowed Burrough to significantly influence the investee's decisions. As of July 1, 2022, the investee had assets with a book value of $5 million and liabilities of $1,101,500. At the time, Carter held equipment appraised at $280,000 more than book value; it was considered to have a seven-year remaining life with no salvage value. Carter 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 an indefinite-lived trademark. Depreciation and amortization are computed using the straight-line method. Burrough applies the equity method for its investment in Carter. Carter's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Carter's income, earned evenly throughout each year, was $640,000 in 2022, $670,600 in 2023, and $735,200 in 2024. In addition, Burrough sold inventory costing $121,800 to Carter for $203,000 during 2023. Carter resold $104,500 of this inventory during 2023 and the remaining $98,500 during 2024. Required: a. Determine the equity income to be recognized by Burrough during each of these years. b. Compute Burrough's investment in Carter Company's balance as of December 31, 2024. Note: For all requirements, enter your answers in whole dollars and not in millions. a. Equity income 2022 a. Equity income 2023 a. Equity income 2024 b. Investment in Carter $ 94,000 $ 184,480 $ 210,320 $ 1,958,800
On July 1, 2022, Burrough Company acquired 105,000 of the outstanding shares of Carter Company for $19 per share. This acquisition gave Burrough a 40 percent ownership of Carter and allowed Burrough to significantly influence the investee's decisions. As of July 1, 2022, the investee had assets with a book value of $5 million and liabilities of $1,101,500. At the time, Carter held equipment appraised at $280,000 more than book value; it was considered to have a seven-year remaining life with no salvage value. Carter 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 an indefinite-lived trademark. Depreciation and amortization are computed using the straight-line method. Burrough applies the equity method for its investment in Carter. Carter's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Carter's income, earned evenly throughout each year, was $640,000 in 2022, $670,600 in 2023, and $735,200 in 2024. In addition, Burrough sold inventory costing $121,800 to Carter for $203,000 during 2023. Carter resold $104,500 of this inventory during 2023 and the remaining $98,500 during 2024. Required: a. Determine the equity income to be recognized by Burrough during each of these years. b. Compute Burrough's investment in Carter Company's balance as of December 31, 2024. Note: For all requirements, enter your answers in whole dollars and not in millions. a. Equity income 2022 a. Equity income 2023 a. Equity income 2024 b. Investment in Carter $ 94,000 $ 184,480 $ 210,320 $ 1,958,800
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On July 1, 2022, Burrough Company acquired 105,000 of the outstanding shares of Carter Company for $19 per share. This acquisition
gave Burrough a 40 percent ownership of Carter and allowed Burrough to significantly influence the investee's decisions.
As of July 1, 2022, the investee had assets with a book value of $5 million and liabilities of $1,101,500. At the time, Carter held
equipment appraised at $280,000 more than book value; it was considered to have a seven-year remaining life with no salvage value.
Carter 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 an indefinite-lived trademark. Depreciation and amortization are computed using the straight-line method. Burrough
applies the equity method for its investment in Carter.
Carter's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Carter's income, earned evenly
throughout each year, was $640,000 in 2022, $670,600 in 2023, and $735,200 in 2024.
In addition, Burrough sold inventory costing $121,800 to Carter for $203,000 during 2023. Carter resold $104,500 of this inventory
during 2023 and the remaining $98,500 during 2024.
Required:
a. Determine the equity income to be recognized by Burrough during each of these years.
b. Compute Burrough's investment in Carter Company's balance as of December 31, 2024.
Note: For all requirements, enter your answers in whole dollars and not in millions.
a. Equity income 2022
a. Equity income 2023
a. Equity income 2024
b. Investment in Carter
$ 94,000
$ 184,480
$ 210,320
$ 1,958,800
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