Advanced Accounting 12th Edition by Joe Ben Hoyle,Thomas Schaefer , Timothy Doupnik

Exercise 20

Alex, Inc., buys 40 percent of Steinbart Company on January 1, 2014, 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:

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 2014 and $110,000 in 2015 and declares $30,000 in dividends each year. What is the equity income in Steinbart to be reported by Alex in 2015
a. $34,050.
b. $38,020.
c. $46,230.
d. $51,450.