Reference no: EM133009557

On January 1, 2019, NBC Corporation was created by issuing 100,000 shares of common stock at a price of $100 per share. NBC is a new biopharmaceutical company that will invest heavily in research and development (R&D) activities before developing an approved product that can be sold. Simultaneously, NBC Corporation issued 50,000 shares of preferred stock at a price of $100 per share. The preferred stock has a cumulative preferred dividend of $10 per share per year. The preferred stock is not convertible into common stock and has no voting rights. In liquidation, the preferred stockholders have the right to receive $100 per share plus any unpaid dividend prior to any distribution to the common stockholders.

On January 1, 2019, OBC Corporation purchased 20,000 shares of NBC common stock at a purchase price of $100 per share.

Problem 1: How should OBC determine how to account for its investment in NBC? Describe the evidence that OBC should consider, with citations to the Codification.