Answer:
A. Equity income $278,756
B. Other Comprehensive Loss ($136,400)
C. Gain on sale $37,177
Explanation:
Calculation to determine what income effects would be reported from its ownership in Seacrest
A. Calculation to determine the Equity Income In Seacrest, Inc.
EQUITY INCOME In Seacrest, Inc.
Investee income accrual—operations $310,200
$846,000 × 40% × 7/12 year $197,400
$846,000 × 32% × 5/12 year $112,800
Amortization ($34,100)
($21,700+$12,400)
$37,200 × 7/12 year $21,700
After 20 percent of stock is sold $12,400
[ (24,800 ÷ 124,000 shares): $37,200 × 80% × 5/12 year]
Recognition of unrealized gross profit
Remaining inventory—12/31/17
$16,600
Gross profit percentage on original 40%
sale($($54,000-$32,400) ÷ $54,000)
Gross profit remaining in inventory $6,640
($16,600*40%)
Ownership percentage 40%
Intra-entity gross profit recognized in 2018 $2,656
(40%*$6,640)
Equity income in Seacrest, Inc $278,756
($310,200-$34,100+$2,656)
B. Calculation to determine Other comprehensive loss—Seacrest, Inc.
OTHER COMPREHENSIVE LOSS—Seacrest, Inc.
1/1/18 to 8/1/18 ($372,000 × 40% × 7/12 year) $86,800
8/1/18 to 12/31/18 ($372,000 × 32% × 5/12 year) $49,600
Other Comprehensive Loss—Seacrest, Inc ($136,400)
($86,800+$49,600)
C. Calculation to determine Gain on Sale of Investment in Seacrest, Inc.
GAIN ON SALE OF INVESTMENT in Seacrest, Inc.
Book value—investment in Seacrest, Inc.—1/1/18
$905,200
Investee income accrual—1/1/18 – 8/1/18 $197,400
Investee other comprehensive loss 1/1/18 – 8/1/18 ($86,800)
Amortization—1/1/18 – 8/1/18 ($21,700)
Recognition of deferred profit $2,656
Investment in Seacrest book value 8/1/18 $996,756
(905,200+197,400-$86,800-$21,700+$2,656)
Percentage of investment sold 20%
(24,800 ÷ 124,000 shares)
Book value of shares being sold $199,351
(20%*996,756)
Proceeds from sale of shares $236,528
Gain on sale of 24,800 shares of Seacrest $37,177
($236,528-$199,351)
Therefore On Pine's financial statements for the year ended December 31, 2018 the income effects that would be reported from its ownership in Seacrest are:
A. Equity income $278,756
B. Other Comprehensive Loss ($136,400)
C. Gain on sale $37,177
