On July 1, 2022, Burrough Company acquired 136,000 of the outstanding shares of Carter Company for $15 per share. This acquisition gave Burrough a 25 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 $7 million and liabilities of $456,800. At the time, Carter held equipment appraised at $319,200 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 $980,000. 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 $579,000 in 2022, $619,400 in 2023, and $675,200 in 2024. In addition, Burrough sold inventory costing $111,000 to Carter for $185,000 during 2023. Carter resold $82,500 of this inventory during 2023 and the remaining $102,500 during 2024. Determine the equity income to be recognized by Burrough during each of these years. Compute Burrough's investment in Carter Company's balance as of December 31, 2024.
On July 1, 2022, Burrough Company acquired 136,000 of the outstanding shares of Carter Company for $15 per share. This acquisition gave Burrough a 25 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 $7 million and liabilities of $456,800. At the time, Carter held equipment appraised at $319,200 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 $980,000. Any remaining excess cost was attributable to an indefinite-lived trademark.
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 $579,000 in 2022, $619,400 in 2023, and $675,200 in 2024.
In addition, Burrough sold inventory costing $111,000 to Carter for $185,000 during 2023. Carter resold $82,500 of this inventory during 2023 and the remaining $102,500 during 2024.
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Determine the equity income to be recognized by Burrough during each of these years.
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Compute Burrough's investment in Carter Company's balance as of December 31, 2024.
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