Question

Belden, Inc. acquires 30 percent of the outstanding voting shares of Sheffield, Inc. on January 1, 2017, for $312,000, which gives Belden the ability to significantly influence Sheffield. Sheffield has a net book value of $800,000 at January 1, 2017. 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, 2017. No goodwill resulted from Belden's share purchase. Sheffield reported net income of $180,000 in 2017 and $230,000 of net income during 2018. Dividends of $70,000 and $80,000 are declared and paid in 2017 and 2018, respectively. Belden uses the equity method. On its 2018 comparative income statements, how much income would Belden report for 2017 and 2018 in connection with the company's investment in Sheffield

Answer 1

Answer:

how much income would Belden report for 2017 and 2018 in connection with the company's investment in Sheffield

2017: $54,000

2018: $69,000

total $123,000

Explanation:

the journal entries used to record the investment in Sheffield Inc. are:

January 1, 2017

Dr Investment in Sheffield Inc. 312,000

    Cr Cash 312,000

the adjustments entries necessary for 2017 are:

December 31, 2017, dividends are distributed

Dr Cash 21,000 (= $70,000 x 30%)

    Cr Investment in Sheffield Inc. 21,000

December 31, 2017, net income is reported

Dr Investment in Sheffield Inc. 54,000 (= $180,000 x 30%)

    Cr Revenue from investment in Sheffield Inc. 54,000

the adjustments entries necessary for 2018 are:

December 31, 2018, dividends are distributed

Dr Cash 24,000 (= $80,000 x 30%)

    Cr Investment in Sheffield Inc. 24,000

December 31, 2018, net income is reported

Dr Investment in Sheffield Inc. 69,000 (= $230,000 x 30%)

    Cr Revenue from investment in Sheffield Inc. 69,000