Question

On January 1, 2021, Pine Company owns 40 percent (128,000 shares) of Seacrest, Inc., which it purchased several years ago for $665,600. Since the date of acquisition, the equity method has been properly applied, and the carrying amount of the investment account as of January 1, 2021, is $876,800. Excess patent cost amortization of $38,400 is still being recognized each year. During 2021, Seacrest reports net income of $870,000 and a $384,000 other comprehensive loss, both incurred uniformly throughout the year. No dividends were declared during the year. Pine sold 25,600 shares of Seacrest on August 1, 2021, for $226,542 in cash. However, Pine retains the ability to significantly influence the investee. During the last quarter of 2020, Pine sold $72,000 in inventory (which it had originally purchased for only $43,200) to Seacrest. At the end of that fiscal year, Seacrest's inventory retained $14,200 (at sales price) of this merchandise, which was subsequently sold in the first quarter of 2021. On Pine's financial statements for the year ended December 31, 2021, what income effects would be reported from its ownership in Seacrest? (Do not round intermediate calculations. Round your answers to the nearest whole dollar.) SEACREST, INC. Equity income Other comprehensive loss Gain on sale of investment

Answer 1

Part 1

Equity Income in Seacrest, Inc.

Investee income accrual—operations
$8,70,000 × 40% × 7/12 year	203000
$8,70,000 × 32% × 5/12 year	116000	319000
Amortization
$38400 × 7/12 year	22400
After 20 percent of stock is sold (25600 ÷ 128000 shares): $38400 × 80% × 5/12 year	12800	(35200)
Recognition of unrealized gross profit
Remaining inventory—12/31/20	14200
Gross profit percentage on original sale($(72000-43200) ÷ $72,000)	40%
Gross profit remaining in inventory	5680
Ownership percentage	40%
Intra-entity gross profit recognized in 2021		2272
Equity income in Seacrest, Inc		286072

here 40% given in the question

32% means co. have 128000 shares available and pine co. sold 1 aug 2021 25600 share so co. has 128000-25600= 102400 shares available after sold which is 32% like 40/128000*102400 = 32%

Part 2

Other comprehensive loss—Seacrest, Inc.

1/1/21 to 8/1/21 ($384000 × 40% × 7/12 year)	89600
8/1/18 to 12/31/18 ($384,000 × 32% × 5/12 yea	51200	(140800)

Part 3

Gain on Sale of Investment in Seacrest, Inc.

Book value—investment in Seacrest, Inc.—1/1/21	876800
Investee income accrual—1/1/21 – 8/1/21	203000
Investee other comprehensive loss 1/1/21 – 8/1/21	(89600)
Amortization—1/1/21 – 8/1/21	(22400)
Recognition of deferred profit	2272
Investment in Seacrest book value 8/1/21	970072
Percentage of investment sold (25600 ÷ 128000 shares)	20%
Book value of shares being sold	194014.4
Proceeds from sale of shares	226542
Gain on sale of 25600 shares of Seacrest	32527.6