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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%)
Life of trade name
2014 Gross profit rate = $30,000 ÷ $100,000 = 30%
This question was answered on: Feb 21, 2020
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