Davis Inc Purchased a Controlling Interest in Martin Inc

question 13

Essay

Davis Inc. purchased a controlling interest in Martin Inc. on January 1, 2019, when Martin's common shares and retained earnings were carried at $180,000 and $60,000 respectively. On that date, Martin's book values approximated its fair 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 value which was $20,000 higher than its book value. Martin's Inventories on January 1, 2019 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, 2020, would result in a loss equal to 10% of the goodwill (regardless of the amount) at the date of acquisition being recorded. During 2019, Martin reported a net income of $60,000 and declared and paid $12,000 in dividends. Martin's 2020 net income and declared and paid dividends were $72,000 and $15,000, respectively. Martin uses straight-line amortization for all of its assets.
Davis uses the Fair Value Enterprise Method.
Assuming that Davis purchases 80% of Martin for $300,000, answer the following:
Required:
a) Prepare Davis' Equity Method journal entries for 2019 and 2020.
b) Compute the following as at December 31, 2020:
i. Investment in Martin Inc.
ii. Goodwill
iii. The amount of unamortized acquisition differential.