Steven Company Owns 40% of the Outstanding Voting Common Stock

question 84

Essay

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 was the balance in the Investment in Nicole Corp. account at December 31, 2011?

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Definitions:

Stockbroker

A person licensed to assist investors in buying and selling securities for a commission.

Securities Analyst

A financial professional who conducts research, analyzes securities, and provides investment recommendations based on their findings.

Market Maker

A firm or individual who actively quotes two-sided markets, providing offers to buy and sell securities, thus facilitating liquidity in the markets.

Accounting

The systematic recording, reporting, and analysis of financial transactions of a business.