The Following Information Pertains to Questions

question 20

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 80% 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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