Question: Alex, Inc., buys 40 percent of Steinbart
Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2017, for $530,000. The equity method of accounting is to be used. Steinbart’s net assets on that date were $1.2 million. Any excess of cost over book value is attributable to a trade name with a 20-year remaining life. Steinbart immediately begins supplying inventory to Alex as follows: 
Inventory held at the end of one year by Alex is sold at the beginning of the next. Steinbart reports net income of $80,000 in 2017 and $110,000 in 2018 and declares $30,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2018? a. $34,050 b. $38,020 c. $46,230 d. $51,450
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Amount Held by Alex at Year-End Year Transfer Price (at transfer price) Cost to Steinbart 2017 $70,000 $100,000 $25,000 2018 96,000 150,000 45,000
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