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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Definitions:

Embryonic Development

The series of changes an embryo undergoes in the process of growth and differentiation to become a functional organism.

First Stage

The initial phase or level in a process or series of actions, often setting the foundation for subsequent stages.

Organogenesis

The process during embryonic development in which organs are formed from the germ layers.

Embryonic Development

The process by which an embryo forms and develops, from the single-cell zygote stage to the establishment of body plan and organogenesis.