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 |
|
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.