Alex Inc buys 30 percent of Steinbart Company on January 1 2

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: 10 points Amount Held by Alex at Year-End 02:19:41) Year cost to Steinbart Transfer Price (at Transfer Price) 2017 $73,440 105,600 $102,000 165,000 $25,500 50,000 2018 Skipped eBookInventory 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?

Solution

Answer:- $30,007

Calculation:-

Purchase price of steinbart shares	$460,000
Book value of steinbart shares ($13,00,000 × 30%)	($390,000)
Trade name	$70,000
Life of trade name	20 years
Annual amortization	$3500
2017 Gross profit rate =102,000 - 73,440 = 28,560/102,000 =28%
2018 Gross profit rate = 165,000 - 105,600 = 59400/165,000 = 36%
2018 equity income in steinbart:
Income
Accural (122,550 × 30%)	$36,765
Amortization(above)	($3500)
Recognization of 2017 Unrealized gain($25,500 × 28% GPR × 30% ownership )	$2142
Deferral of 2018 Unrealized gain($50,000 × 36%GPR × 30% ownership)	($5400)
Equity income in steinbart	$30,007