The Following Information Pertains to Questions

question 21

Essay

The following information pertains to questions
Davis Inc.purchased a controlling interest in Martin Inc.on January 1,2002,when Martin's common stock and retained earnings were carried at $180,000 and $60,000 respectively.On that date,Martin's book values approximated its fair market values,with the exception of the company's inventories and a Patent held by Martin.The patent,which had an estimated remaining useful life of ten years,had a fair market value which was $20,000 higher than its Book value.Martin's Inventories on January 1,2002 were estimated to have a fair value that was $16,000 higher than their Book value.
It was predicted that Martin's goodwill impairment test,which was to be conducted on December 31,2003,would result in a loss equal to 10% of the goodwill (regardless of the amount)at the date of acquisition being recorded)During 2002,Martin reported a net income of $60,000 and paid $12,000 in dividends.Martin's 2003 net income and dividends were $72,000 and $15,000,respectively.Martin uses straight-line amortization for all of its assets.
-Assuming that Davis purchases 100% of Martin for $300,000,answer the following:
Required:
a)Prepare Davis' Equity Method journal entries for 2002 and 2003.
b)Compute the following as at December 31,2003:
i.Investment in Martin Inc.
ii.Goodwill
iii.The amount of unamortized acquisition differential.

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Definitions:

Unrealized Profits

Gains on investments that have increased in value but the increase has not been realized through selling.

Economic Decisions

Choices made by individuals, businesses, or governments based on the allocation of scarce resources with the aim of maximizing benefits and minimizing costs.

Economic Activities

Economic activities encompass all actions that involve the production, distribution, and consumption of goods and services within an economy.

Ethical Conduct

The practice of behaving in a manner that is considered morally right, fair, and appropriate in a given context, especially in professional settings.