Alex, Inc., buys 30 percent of Steinbart Company on January 1, 2017, for $460,00

Question

Alex, Inc., buys 30 percent of Steinbart Company on January 1, 2017, for $460,000. The equity method of accounting is to be used. Steinbart's net assets on that date were $1.30 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 28 10 points Amount Held by Alex at Year-End Skipped Year Cost to Steinbart Transfer Price (at Transfer Price) 2017 2018 $73,440 105,600 $102,000 165,000 $25,500 50,000 eBook Inventory held at the end of one year by Alex is sold at the beginning of the next. Steinbart reports net income of $90,750 in 2017 and $122,550 in 2018 and declares $20,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2018?

Explanation / Answer

Working:

Net income from Steinbart (30% of 122,550) 36765 Amortization of trade name -3500 Gain on inventory deferred -8438 Equity income from Steinbart 24827

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