On July 1, 2016, Killearn Company acquired 142,000 of theoutstanding shares of Shaun Company for $15 per share. Thisacquisition gave Killearn a 40 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$5 million and liabilities of $890,000. At the time, Shaun heldequipment appraised at $245,000 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 $800,000. 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 $614,000 in 2016, $654,600 in 2017, and$704,200 in 2018.
In addition, Killearn sold inventory costing $145,800 to Shaunfor $243,000 during 2017. Shaun resold $102,000 of this inventoryduring 2017 and the remaining $141,000 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.
(For all requirements, enter your answers in wholedollars and not in millions.)
