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Belden, Inc. acquires 30 percent of the outstanding voting shares of Sheffield, Inc. on January 1, 2017, for $308,000, which gives Belden the ability to significantly influence Sheffield. Sheffield has a net book value of $820,000 at January 1, 2017. Sheffields asset and liability accounts showed carrying amounts considered equal to fair values except for a copyright whose value accounted for Beldens 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 Beldens share purchase Sheffield reported net income of $188,000 in 2017 and $232,000 of net income during 2018. Dividends of $82,000 and $82,000 are declared and paid in 2017 and 2018, respectively. Belden uses the equity method a. On its 2018 comparative income statements, how much income would Belden report for 2017 and 2018 in connection with the companys investment in Sheffield? b. If Belden sells its entire investment in Sheffield on January 1, 2019, for $400,000 cash, what is the impact on Beldens income? c. Assume that Belden sells inventory to Sheffield during 2017 and 2018 as follows. What amount of equity income should Belden recognize for the year 2018? Year-End Balance (at Transfer Price) Cost to Price to YearBelden Sheffield 2017 $38,280 $58,000 61,000 $18,000 (sold in following year) 40,000 (sold in following year) 2018 32,940 a. Equity income 2017 Equity income 2018 Gain on sale of investment C. Equity income

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Answer #1
Belden Inc has significant influence on Sheffield Inc
Significant Influence gives the company the right to participate in the financial and operating decision of the company but does not provide control over its policies
In Equity method of accounting, the investment is recorded at cost and is adjusted for its share in net income and dividend impact
a. Value of copyright
Purchase Price $308,000
Net book Value 30%*820000 $246,000
Copyright $62,000
Remaining Life 16
Annual Amortization $3,875
2017 Equity Income
Belden's share 188000*30% $56,400
Amortization -$3,875
Equity Income - 2017 $52,525
2018 Equity Income
Belden's share 232000*30% $69,600
Amortization -$3,875
Equity Income - 2018 $65,725
b. Purchase Cost $308,000
Net Income 2017 $52,525
Dividend 2017 82000*30% -$24,600
Value of Investment 31/12/2017 $335,925
Value at Beginning 01/01/2018 $335,925
Net Income 2018 $65,725
Dividend 2018 82000*30% -$24,600
Value of Investment 31/12/2018 $377,050
Sale Price of Investment $400,000
Value of investment 01/01/2019 -$377,050
Gain from Sale of Investment $22,950
c. 2017 intra-entity Gross profit to be recognized in 2018
Ending Inventory $18,000
Gross Profit percentage ((58000-38280)/58000) 34.00%
Intra entity Gross Profit $6,120
Belden's ownership 30.00%
Intra Entity Gross Profit to be recognized in 2018 $1,836
Deferral of 2018 intra entity gross profit in 2019
Ending Inventory $40,000
Gross Profit percentage ((61000-32940)/61000) 46.00%
Intra entity Gross Profit $18,400
Belden's ownership 30.00%
Unrealized intra-entity gross profit $5,520
Equity Income - 2018
2018 Equity Income as calculated in part a $65,725
Recognition of 2017 intra entity Profit $1,836
Deferral of 2018 intra-entity profit -$5,520
Equity Income $62,041
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