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

question 38

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 unrealized intercompany inventory profit should be deferred by Steven at December 31,2008?

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Definitions:

Exploitation

The act of using someone unfairly for one's own advantage, especially in economic terms, often neglecting the exploited party's welfare.

Commodity

A raw material or primary agricultural product that can be bought, sold, or traded, often global commodities markets.

Exchange Value

The value of a good or service determined by what it can be traded or exchanged for in the market, influenced by supply and demand dynamics.

Use Value

The practical utility or usefulness of a commodity or service to meet human needs.