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Question: Alex, Inc., buys 40 percent of Steinbart


Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2020, 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:



Alex, Inc., buys 40 percent of Steinbart Company on January -1

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 2020 and $110,000 in 2021 and declares $30,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2021?
a. $34,050
b. $38,020
c. $46,230
d. $51,450

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