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Question: Alex Inc, buys 40 percent of Steinbart Company on


Alex Inc, buys 40 percent of Steinbart Company on January 1, 2014, for $530,000. The equity method 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 years remaining life, Steinbart immediately begins supplying inventory to Alex as follows:

Year         Cost to Steinbart          Transfer Price              Amnt Hld at yr end (trsfr price)

2014          $70,000                             $100,000                 $25,000

2015            96,000                               150,000                    45,000

Inventory held at end of one year by Alex is sold at the beginning of the next.

Steinbart reports net income of $80,000 in 2014 and $110,000 in 2015 while paying $30,000 in dividends each year. What is the investment in Steinbart balance (equity method) in Alex records in 2014 & 2015?

Pls show the working problem. Thanks

Purchase price of Steinbart shares


Book value of Steinbart shares ($1,200,000 × 40%)


Trade name


Life of trade name


Annual amortization


2014 Gross profit rate = $30,000 ÷ $100,000 = 30%


2015 Gross...


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