On January 1, 2012, Franel Co

question 55

Multiple Choice

On January 1, 2012, Franel Co. acquired all of the common stock of Hurlem Corp. For 2012, 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 partial equity method of internal recordkeeping?

• A) $170,000.
• B) $354,000.
• C) $164,000.
• D) $6,000.
• E) $174,000.

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Definitions:

Days' Sales Uncollected

A financial ratio that measures the average number of days it takes for a company to collect payment after a sale has been made.

Accounts Receivable

Accounts receivable refers to the amount of money that customers owe to a company for goods or services that have been delivered but not yet paid for.

Cash

Liquid currency and assets readily convertible into cash, used to fund day-to-day operations and transactions.

Liquidity

A measure of how easily assets can be converted into cash without losing value.