Alex, Inc., buys 30 percent of Steinbart Company on January 1, 2012, for $544,000. The equity method of accounting is to be used. Steinbarts net assets on that date were $1.5 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)
2012 $123,000 $164,000 $41,000
2013 145,530 220,500 68,500
Inventory held at the end of one year by Alex is sold at the beginning of the next. Steinbart reports net income of $104,000 in 2012 and $137,300 in 2013 while paying $40,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2013?
a. $27768.
b. $46078.
c. $32578.
d. $42178.