Reference no: EM133025748

Question - On July 1, 2019, Killearn Company acquired 139,000 of the outstanding shares of Shaun Company for $20 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 $6 million and liabilities of $205,000. At the time, Shaun held equipment appraised at $185,500 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 $800,000. 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 $558,000 in 2019, $599,400 in 2020, and $645,200 in 2021.

In addition, Killearn sold inventory costing $92,400 to Shaun for $154,000 during 2020. Shaun resold $106,000 of this inventory during 2020 and the remaining $48,000 during 2021.

Required -

-Determine the equity income to be recognized by Killearn during each of these years.

-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.)