On January 1, 2016, Halstead, Inc., purchased 71,000 shares of Sedgwick Company
ID: 2595854 • Letter: O
Question
On January 1, 2016, Halstead, Inc., purchased 71,000 shares of Sedgwick Company common stock for $1,485,000, giving Halstead 25 percent ownership and the ability to apply significant influence over Sedgwick. Any excess of cost over book value acquired was attributed solely to goodwill.
Sedgwick reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout these years. Dividends are declared and paid in the same period.
On July 1, 2018, Halstead sells 10,000 shares of this investment for $27 per share, thus reducing its interest from 25 to 21 percent, but maintaining its significant influence.
Determine the amounts that would appear on Halstead's 2018 income statement relating to its ownership and partial sale of its investment in Sedgwick's common stock.
As total income accrual (no unearned gains):
As ____ on sales of shares:
Explanation / Answer
Equity method of Income Accural for 2018 Amount in $ first half year =25%*$606,000*0.50 75750 Second half year (21.48%*606,000*0.50) 65084 (71000-10,000)/(71000/0.25) =0.2148 Total income Accural 140834 Add: gain on sale 2580 Total income for 2018 143414 gain on sale of 10,000 Stock Amount in $ Cost of initial Aquistion 1485000 Add: 25% of income of 2016 101750 Less: 25% of Dividends for 2016 -31000 carrying Amount for 2016 1555750 Add: 25% of income of 2017 98250 Less: 25% of Dividends for 2017 -39750 carrying Amount for 2017 1614250 Add: 25% of income of 2018 for half year 75750 Less: 25% of Dividends for 2016 -18625 carrying Amount for june 30,2018 1671375 value of 10000 Shares (1671375*10000/71000) 267420 Sale value (10,000*$27) 270000 gain sale of 10,000 Shares (270,000-267420) 2580
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