Steven Company Owns 40% of the Outstanding Voting Common Stock

question 63

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, 2011, the balance in the Investment in Nicole Corp. account was $503,000. Amortization associated with this acquisition is $12,000 per year. During 2011, Nicole earned net income of $120,000 and paid cash dividends of $40,000. Previously in 2010, 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 2010. Additional sales were made to Steven in 2011 at a transfer price of $75,000 that had cost Nicole $54,000. Only 10% of the 2011 purchases had not been sold to outsiders by the end of 2011.
What amount of unrealized intra-entity profit should be deferred by Steven at December 31, 2011?

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Definitions:

Vendor Payment

The process of paying money owed to a supplier for products or services purchased on credit.

Services Performed

Refers to the completed tasks or provided services by a company or individual for which payment is due.

Supplies Withdrawal

The act of taking out supplies from inventory for use, typically recorded as an expense when they are used rather than when purchased.

Increases and Decreases

Terms referring to the changes in financial statement amounts from one period to another, affecting assets, liabilities, revenues, and expenses.