Steven Company Owns 40% of the Outstanding Voting Common Stock

question 67

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 inventory profit should be deferred by Steven at December 31, 2010?

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Definitions:

Cedar Wood

A type of softwood that is known for its durability, resistance to decay, and aromatic properties, commonly used in furniture, building materials, and clothing storage.

Decision-Making Process

A series of steps taken by an individual or a group to identify and evaluate options and make a choice among alternatives.

Familiar

Well-known or easily recognized by many people due to exposure or experience.

Retirement Account

A financial account specifically designed for saving and investing funds to support individuals financially in their retirement years.