Question

Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2017, for $1,540,000. The equity method of accounting is to be used. Steinbart's net assets on that date were $3.70 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: Amount Held by Alex at Year-End Year Cost to Steinbart Transfer Price (at Transfer Price) 2017 $132,600 $170,000 $42,500 2018 104,520 156,000 47,000 Inventory held at the end of one year by Alex is sold at the beginning of the next. Steinbart reports net income of $88,750 in 2017 and $119,850 in 2018 and declares $20,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2018?

Answer 1

Answer Page No o Eesperthing Encome Lesbeinbarts in 2018 Purchase price of steinbart shares = $1540,000 Book value of steinbart shares = $3. Tormillion X 40% 00,000 X 40% = $1480,000 Toode name : 1540,000 - 1480,000 = $ 60,000 : Trade name Annual amortization =- - Life of trade name = 60,000 $3000 20 years 2014 Gross profit orate - Transfer price. - Corf to steinbank transfer price 170,000 -132600 - : 140,000 X100

Page. No @ orale - 156000 – 104520 xico 2018 groms profit 156000 = 33% Accural = $119850 X 40 % . = $ 47940 Amortization = $ 3000 Recognization of 2014 unrealized gain = 42500 x 2246x40%. = $ 3740 !! 2014 amount held by alex at year end = 42500 2014 gross profil viale e day. - Owneriship = 40% Ou = 40% Debernal of 2018 unrealized gain = 44000 X 334. x 40 % $ 6204 2018 amount held by alez at year end = $44000 2018 grows profit crate - 334. Clonenship = 40%

Page, No ③ Equity income in steinbart - 47940 - 3000 + 3740 - 6204 = $42446 1. Equily income in steinbart in 2018 = $42476