Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2008, for $530,000. The equity method
Question:
Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2008, 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 im¬ mediately begins supplying inventory to Alex as follows:
Amount Held by Alex at Year-End Year Cost to Steinbart Transfer Price
(at Transfer Price)
2008
$70,000
$100,000
$25,000 2009 96,000 150,000 45,000 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 2008 and $110,000 in 2009 while paying $30,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2009?
a. $34,050.
b. $38,020.
c. $46,230.
d. $51,450.
Step by Step Answer:
Advanced Accounting
ISBN: 9780073379456
9th Edition
Authors: Joe Ben Hoyle, Timothy S. Doupnik, Thomas F. Schaefer, Oe Ben Hoyle