Question

On January 1, 2020, Franel Co. acquired all of the common stock of Hurlem Corp.For 2020, Hurlem earned net income of $360,000 and paid dividends of $190,000.Amortization of the patent allocation that was included in the acquisition was $6,000. How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the initial value method of internal recordkeeping

Answer 1

$6,000

Step-by-step explanation:

Calculation for How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the initial value method of internal recordkeeping

Using this formula

Difference in Franel's income using Equity Method = [(Net income-Dividends)-(Net income-Patent allocation amortization- Dividends)]

Let plug in the formula

Difference in Franel's income using Equity Method =[($360,000 - $190,000)-($360,000 - $6,000 - $190,000]

Difference in Franel's income using Equity Method = $170,000 -$164,000

Difference in Franel's income using Equity Method =$6,000

Therefore How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the initial value method of internal recordkeeping is $6,000