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