ignment Chapter 1 6 Help Save & E Problem 1-12 (LO 1-3,14,1-6) Alex, Inc, buys 3
ID: 2338888 • Letter: I
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ignment Chapter 1 6 Help Save & E Problem 1-12 (LO 1-3,14,1-6) Alex, Inc, buys 30 percent of Steirbert Company on January 1 2017, for $694,000 The equity method of accounting s to be used alue is attibutable to a trede name with e 20-year renaining life. Steirbart immedistely begins supolyling Inventory to Alex as Steinberts net assets on thet date were $2.10 million Any encess of cest over book at Year-End 2017 $209, 600 201134,190 $262,000 189.000 65,50 8,000 Inventory held at the end of one year by Alex is sold at the beginning of the next Steinbert reports met income of $97250 In 2017 and $132 450 in 2018 and decleres $40,000 In dvidends each year What is the equlty income in Steirbart to be neported by Alex in 2018 Multiple Choice 35419 50419 30 529 45.99Explanation / Answer
Purchase Price of Steinbart shares $ 6,94,000.00 Book value of Steinbart shares(2100000*30%) $ 6,30,000.00 Excess of cost over book vale=Trade Name $ 64,000.00 Useful life 20 Years Annual Amortization=($64000/20) $ 3,200.00 2017 Gross Profit rate= Transfer Price=(A) $ 2,62,000.00 Cost=(B) $ 2,09,600.00 Gross Profit=(A)-(B) $ 52,400.00 Gross Profit rate=($52400/$262000) 20% 2018 Gross Profit rate= Transfer Price=(A) $ 1,89,000.00 Cost=(B) $ 1,34,190.00 Gross Profit=(A)-(B) $ 54,810.00 Gross Profit rate=($54810/$189000) 29% Equity Income in 2018 $ 39,735.00 Less : Amortization of Trade Name $ -3,200.00 Recognition of 2017 unrealized gain=($65500*30%*20%) $ 3,930.00 Deferred of 2018 unrealized gain($58000*30%*29%) $ -5,046.00 Equity Income of Steinbart reported by Allex $ 35,419.00
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