Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2012, 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 2012 and $110,000 in 2013 while paying $30,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2013?
a. $34,050.
b. $38,020.
c. $46,230.
d. $51,450.

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Amount Held by Alex Year 2012 2013 Cost to Steinbart $70,000 96,000 Transfer Price $100,000 150,000 at Year-End (at transfer price) $25,000 45,000