Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Belden, Inc., acquires 30 percent of the outstanding voting shares of Sheffield, Inc., on January 1, 2020, for $316,000, which gives Belden the ability to significantly influence Sheffield. Sheffield has a net book value of $812,000 at January 1, 2020. Sheffield’s asset and liability accounts showed carrying amounts considered equal to fair values, except for a copyright whose value accounted for Belden’s excess cost over book value in its 30 percent purchase. The copyright had a remaining life of 16 years at January 1, 2020. No
Sheffield reported net income of $180,000 in 2020 and $254,000 of net income during 2021. Dividends of $94,000 and $72,000 are declared and paid in 2020 and 2021, respectively. Belden uses the equity method.
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On its 2021 comparative income statements, how much income would Belden report for 2020 and 2021 in connection with the company’s investment in Sheffield?
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If Belden sells its entire investment in Sheffield on January 1, 2022, for $430,000 cash, what is the impact on Belden's income?
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Assume that Belden sells inventory to Sheffield during 2020 and 2021 as follows:
| Year | Cost to Belden |
Price to Sheffield |
Year-End Balance (at Transfer Price) |
| 2020 | $24,000 | $40,000 | $20,000 (sold in following year) |
| 2021 | 33,630 | 59,000 | 38,000 (sold in following year) |
Required:
Determine the following amounts.
a. equity income 2020
equity income 2021
b. (gain/loss) on sale of investment
c. equity income 2021
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