Question
Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2020, for $648,000. The equity method of accounting is to be used. Steinbarts net
Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2020, for $648,000. The equity method of accounting is to be used. Steinbarts net assets on that date were $1.40 million. Any excess cost over book value is attributable to a trading name with a 20-year remaining life. Steinbart immediately begins supplying inventory to Alex as follows: Year Cost to Steinbart Transfer Price Amount Held by Alex at Year-End (at transfer price) 2020 $159,040 $224,000 $56,000 2021 127,360 199,000 63,000 Inventory held at the end of one year by Alex is sold at the beginning of the next. Steinbart reports net income of $82,000 in 2020 and $116,400 in 2021 and declares $30,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2021?
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