Steven Company Owns 40% of the Outstanding Voting Common Stock

question 58

Essay

Steven Company owns 40% of the outstanding voting common stock of Nicholas Corp. and has the ability to significantly influence the investee's operations. On January 4, 2021, the balance in the Investment in Nicholas Corp. account was $503,000. Amortization associated with this acquisition is $12,000 per year. During 2021, Nicholas earned net income of $120,000 and paid cash dividends of $40,000. Previously in 2020, Nicholas had sold inventory costing $35,000 to Steven for $50,000. All but 25% of that inventory had been sold to outsiders by Steven during 2020; the remainder was sold in 2021. Additional sales were made to Steven in 2021 at an intra-entity selling price of $75,000. The goods in the intra-entity sales cost Nicholas $54,000. Only 10% of the 2021 intra-entity purchases from Nicholas had not been sold to outsiders by the end of 2021.What was the balance in the Investment in Nicholas Corp. account at December 31, 2021?

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Definitions:

Catalyst

A material that accelerates the speed of a chemical reaction without experiencing any lasting chemical alteration.

Acid Equilibrium

The state of balance between the forward and reverse reactions in which an acid donates a proton to a base.

Acid Salt

A type of salt that contains an ionizable hydrogen atom, allowing it to act as an acid under suitable conditions.

Soluble

Ability of a substance to dissolve in a solvent, forming a homogeneous mixture at a molecular or ionic level.