Steven Company Owns 40% of the Outstanding Voting Common Stock

question 113

Short Answer

Steven Company owns 40% of the outstanding voting common stock of Nicole Corp. and has the ability to significantly influence the investee's operations. On January 3, 2013, the balance in the Investment in Nicole Corp. account was $503,000. Amortization associated with this acquisition is $12,000 per year. During 2013, Nicole earned net income of $120,000 and paid cash dividends of $40,000. Previously in 2012, Nicole 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 2012. Additional sales were made to Steven in 2013 at a transfer price of $75,000 that had cost Nicole $54,000. Only 10% of the 2013 purchases had not been sold to outsiders by the end of 2013.
What amount of unrealized intra-entity inventory profit should be deferred by Steven at December 31, 2012?

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Definitions:

Tricuspid Valve

A valve in the human heart that lies between the right atrium and the right ventricle, regulating blood flow.

Right Atrium

The upper right chamber of the heart that receives deoxygenated blood from the body and pumps it to the right ventricle.

Diastole

The phase of the heartbeat when the heart muscle relaxes and allows the chambers to fill with blood.

Systole

The stage in the heart's rhythm where the cardiac muscle tightens, forcing blood out of its chambers and into the arterial network.