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.

---

Definitions:

Voting Stock

Shares that give the shareholder the right to vote on matters of corporate policy and the election of the board of directors.

Dividend Revenue

Dividend revenue is income received from owning shares in a company that pays dividends.

Long-Term Investment

Investments in securities or other assets that a company intends to hold for a period exceeding one year to earn revenue or influence business operations.

Unrealized Loss

A decrease in the value of an investment that has not yet been sold for cash.