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On January 1, 2020, Hemingway Co. acquired all of the common stock of Crotec Corp. For...

On January 1, 2020, Hemingway Co. acquired all of the common stock of Crotec Corp. For 2020, Crotec earned net income of $375,000 and paid dividends of $200,000. Amortization of the patent allocation that was included in the acquisition was $8,000. How much difference would there have been in Hemingway’s income with regard to the effect of the investment, between using the equity method or using the partial equity method of internal recordkeeping?

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Answer:
Hemingway’s income - Equity method
         = Net Income (-) Dividends (-) Amortization of the patent
         =   $ 375,000 (-) $ 200,000 (-) $ 8,000
         =    $ 167,000
Hemingway’s income - Partial Equity method
         = Net Income (-) Dividends
         =   $ 375,000 (-) $ 200,000
         =    $ 175,000
Difference in Income = $ 175,000 (-) $ 167,000 =   $ 8,000
Difference in Hemingway’s income with regard to the effect of the investment = $ 8,000
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