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

Transcribed Image Text:

Amount Held by Alex at Year-End (at transfer price) Year Cost to Stelnbart $70,000 96,000 Transfer Price $100,000 150,000 $25,000 45,000 2017 2018