On January 1 2016 Halstead Inc purchased 78000 shares of Sed

On January 1, 2016, Halstead, Inc., purchased 78,000 shares of Sedgwick Company common stock for $1,430,000, giving Halstead 25 percent ownership and the ability to apply significant influence over Sedgwick. Any excess of cost over book value acquired was attributed solely to goodwill Sedgwick reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout these years Dividends are declared and paid in the same period. Net Income $351,000 490,000 Annual Cash Dividends (paid quarterly) $101,000 144,000 140,000 2016 2017 18 60,000 On July 1, 2018, Halstead sells 13,800 shares of this investment for $22 per share, thus reducing its interest from 25 to 21 percent, but maintaining its significant influence. Determine the amounts that would appear on Halstead\'s 2018 income statement relating to its ownership and partial sale of its investment in Sedgwick\'s common stock. As total income accrual (no unearned gains) As on sale of shares gain loss

Solution

Solution : All amounts in USD -$

Halstead\'s Standalone Income statement

Total dividend income would be : 31,904

140,000*2/4*25% = 17500 ( since dividend is paid quaterly, and 25% shares are held )

140,000*2/4*64,200/312000 = 14,404 ( since dividend is paid quaterly, and 64,200 shares out of the total 312,000 shares are held )

Gain on sales of Shares :

Selling price = 13,800 * 22 = 303,600

Purchase price = 13800 * (1430000/78000) = 253,000

Gain on sale of Shares = 50,600