Question - 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:
Amount Held by Alex at Year-End
Year Cost to Steinbart Transfer Price (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.