Asked by Cassandra Randall on May 21, 2024
Verified
Steven Company owns 40% of the outstanding voting common stock of Nicholas Corp. and has the ability to significantly influence the investee's operations. On January 4, 2021, the balance in the Investment in Nicholas Corp. account was $503,000. Amortization associated with this acquisition is $12,000 per year. During 2021, Nicholas earned net income of $120,000 and paid cash dividends of $40,000. Previously in 2020, Nicholas 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 2020; the remainder was sold in 2021. Additional sales were made to Steven in 2021 at an intra-entity selling price of $75,000. The goods in the intra-entity sales cost Nicholas $54,000. Only 10% of the 2021 intra-entity purchases from Nicholas had not been sold to outsiders by the end of 2021.What amount of equity income would Steven have recognized in 2021 from its ownership interest in Nicholas?
Intra-entity Sales
Transactions occurring between two divisions or subsidiaries within the same parent company, often reflecting internal transfers of goods and services.
Equity Income
Income earned by an investor from an investment in stocks, representing dividends and other distributions from equity investments.
Amortization
Amortization is the process of spreading out a loan or intangible asset cost over a specified period of time for accounting and taxation purposes.
- Compose entries in the journal for equity method investments, dealing with the first recognition, documentation of the investee's net income or loss, and the acknowledgment of dividends received.
- Acknowledge and incorporate other comprehensive income or loss pursuant to the equity method.
Verified Answer
KF
Learning Objectives
- Compose entries in the journal for equity method investments, dealing with the first recognition, documentation of the investee's net income or loss, and the acknowledgment of dividends received.
- Acknowledge and incorporate other comprehensive income or loss pursuant to the equity method.