Belden, Incorporated, acquires 30 percent of the outstanding voting shares of Sheffield, Incorporated, on January 1, 2023, for $306,000, which gives Belden the ability to significantly influence Sheffield. Sheffield has a net book value of $792,000 at January 1, 2023. 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, 2023. No goodwill resulted from Belden's share purchase. Sheffield reported net income of $160,000 in 2023 and $230,000 of net income during 2024. Dividends of $100,000 and $98,000 are declared and paid in 2023 and 2024, respectively. Belden uses the equity method. Required: a. On its 2024 comparative income statements, how much income would Belden report for 2023 and 2024 in connection with the company's investment in Sheffield? b. If Beiden sells its entire investment in Sheffield on January 1, 2025, for $400,000 cash, what is the impact on Belden's income? c. Assume that Belden sells inventory to Sheffield during 2023 and 2024 as follows: Cost to Year Belden 2023 $ 34,020 2024 35,990 Price to Sheffield $ 54,800 61,000 Year-End Balance (at Transfer Price) $18,eee (sold in following year) 40,000 (sold in following year) What amount of equity income should Belden recognize for the year 2024?
Belden, Incorporated, acquires 30 percent of the outstanding voting shares of Sheffield, Incorporated, on January 1, 2023, for $306,000, which gives Belden the ability to significantly influence Sheffield. Sheffield has a net book value of $792,000 at January 1, 2023. 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, 2023. No goodwill resulted from Belden's share purchase. Sheffield reported net income of $160,000 in 2023 and $230,000 of net income during 2024. Dividends of $100,000 and $98,000 are declared and paid in 2023 and 2024, respectively. Belden uses the equity method. Required: a. On its 2024 comparative income statements, how much income would Belden report for 2023 and 2024 in connection with the company's investment in Sheffield? b. If Beiden sells its entire investment in Sheffield on January 1, 2025, for $400,000 cash, what is the impact on Belden's income? c. Assume that Belden sells inventory to Sheffield during 2023 and 2024 as follows: Cost to Year Belden 2023 $ 34,020 2024 35,990 Price to Sheffield $ 54,800 61,000 Year-End Balance (at Transfer Price) $18,eee (sold in following year) 40,000 (sold in following year) What amount of equity income should Belden recognize for the year 2024?
Chapter20: Corporations: Distributions In Complete Liquidation And An Overview Of Reorganizations
Section: Chapter Questions
Problem 35P
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Transcribed Image Text:Belden, Incorporated, acquires 30 percent of the outstanding voting shares of Sheffield, Incorporated, on January 1, 2023, for
$306,000, which gives Belden the ability to significantly influence Sheffield. Sheffield has a net book value of $792,000 at January 1,
2023. 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, 2023. No goodwill resulted from Belden's share purchase.
Sheffield reported net income of $160,000 in 2023 and $230,000 of net income during 2024. Dividends of $100,000 and $98,000 are
declared and paid in 2023 and 2024, respectively. Belden uses the equity method.
Required:
a. On its 2024 comparative income statements, how much income would Belden report for 2023 and 2024 in connection with the
company's investment in Sheffield?
b. If Belden sells its entire investment in Sheffield on January 1, 2025, for $400,000 cash, what is the impact on Belden's income?
c. Assume that Belden sells inventory to Sheffield during 2023 and 2024 as follows:
Cost to
Belden
$ 34,020
Year-End Balance (at Transfer Price)
$18,000 (sold in following year)
40,000 (sold in following year)
35,990
What amount of equity income should Belden recognize for the year 2024?
b.
Year
2023
2024
Price to
Sheffield
$ 54,000
61,000
Answer is complete but not entirely correct.
a. Equity income 2023
a. Equity income 2024
Gain
c. Equity income 2024
on sale of
investment
43,875
64,875x
38,650
61,953
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