Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2010, 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:
Year | Cost to Steinbart | Transfer Price | Amount Held by Alex at Year-End (at Transfer Price) |
2010 | $70,000 | $100,000 | $25,000 |
2011 | 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 2010 and $110,000 in 2011 while paying $30,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2011?
a.$34,050.
b.$38,020.
c.$46,230.
d.$51,450.
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