On July 1, 2016, Killearn Company acquired 136,000 of the outstanding shares of Shaun Company for...

80.2K

Verified Solution

Question

Accounting

On July 1, 2016, Killearn Company acquired 136,000 of theoutstanding shares of Shaun Company for $15 per share. Thisacquisition gave Killearn a 25 percent ownership of Shaun andallowed Killearn to significantly influence the investee'sdecisions.
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 heldequipment appraised at $319,200 above book value; it was consideredto have a seven-year remaining life with no salvage value. Shaunalso held a copyright with a five-year remaining life on its booksthat was undervalued by $980,000. Any remaining excess cost wasattributable to goodwill. Depreciation and amortization arecomputed using the straight-line method. Killearn applies theequity method for its investment in Shaun.
Shaun's policy is to declare and pay a $1 per share cashdividend every April 1 and October 1. Shaun's income, earned evenlythroughout each year, was $579,000 in 2016, $619,400 in 2017, and$675,200 in 2018.
In addition, Killearn sold inventory costing $111,000 to Shaunfor $185,000 during 2017. Shaun resold $82,500 of this inventoryduring 2017 and the remaining $102,500 during 2018.
Determine the equity income to be recognized by Killearn duringeach of these years.
Compute Killearn's investment in Shaun Company's balance as ofDecember 31, 2018

Answer & Explanation Solved by verified expert

3.6 Ratings (598 Votes)

Solution From the given data first we need to find Amortization and Deffered profit They are calculated below Amortization Amount Copy right 980000 25 5 49000 Equipment 319200 25 7 11400 Total 60400 For half year See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

On July 1, 2016, Killearn Company acquired 136,000 of theoutstanding shares of Shaun Company for $15 per share. Thisacquisition gave Killearn a 25 percent ownership of Shaun andallowed Killearn to significantly influence the investee'sdecisions.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 heldequipment appraised at $319,200 above book value; it was consideredto have a seven-year remaining life with no salvage value. Shaunalso held a copyright with a five-year remaining life on its booksthat was undervalued by $980,000. Any remaining excess cost wasattributable to goodwill. Depreciation and amortization arecomputed using the straight-line method. Killearn applies theequity method for its investment in Shaun.Shaun's policy is to declare and pay a $1 per share cashdividend every April 1 and October 1. Shaun's income, earned evenlythroughout each year, was $579,000 in 2016, $619,400 in 2017, and$675,200 in 2018.In addition, Killearn sold inventory costing $111,000 to Shaunfor $185,000 during 2017. Shaun resold $82,500 of this inventoryduring 2017 and the remaining $102,500 during 2018.Determine the equity income to be recognized by Killearn duringeach of these years.Compute Killearn's investment in Shaun Company's balance as ofDecember 31, 2018