On July 1, 2013, Killearn Company acquired 88,000 of the outstanding shares of Shaun Company for $13 per share. This acquisition gave Killearn a 25 percent ownership of Shaun and allowed Killearn to significantly influence the investee’s decisions.As of July 1, 2013, the investee had assets with a book value of $3 million and liabilities of $74,400. At the time, Shaun held equipment appraised at $364,000 above book value; it was considered to have a 7-year remaining life with no salvage value. Shaun also held a copyright with a 5-year remaining life on its books that was undervalued by $972,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Killearn applies the equity method for its investment in Shaun.Shaun’s policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shaun’s income , earned evenly throughout each year, was $598,000 in 2013, $639,000 in 2014, and $692,400 in 2015.In addition, Killearn sold inventory costing $91,200 to Shaun for $152,000 during 2014.Shaun resold $92,000 of this inventory during 2014 and the remaining $60,000 during 2015.a. Determine the equity income to be recognized by killearn during each of these years.b. Compute Killearn’s investment in Shaun Company’s balance as of December 31, 2015.
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