REFERENCE: Ref.01_17 Steven Company Owns 40% of the Outstanding Voting Common Stock

question 75

Essay

REFERENCE: Ref.01_17
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 3,2009,the balance in the Investment in Nicole Corp.account was $503,000.Amortization associated with this acquisition is $12,000 per year.During 2009,Nicole earned net income of $120,000 and paid cash dividends of $40,000.Previously in 2008,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 2008.Additional sales were made to Steven in 2009 at a transfer price of $75,000 that had cost Nicole $54,000.Only 10% of the 2009 purchases had not been sold to outsiders by the end of 2009.
-What amount of equity income would Steven have recognized in 2009 from its ownership interest in Nicole?

---

Definitions:

Joint Legal Custody

A legal arrangement where both parents share the responsibility and authority to make decisions concerning their child's upbringing.

Major Decisions

Significant rulings or conclusions made by an authoritative body or individual that have a considerable impact.

Inter Vivos Trust

A trust created by the grantor, settlor, and effective during the grantor’s lifetime – that is, a trust not established by a will.

Grantor

An individual or entity that creates a trust, transferring ownership of assets to the trust.