Davis Inc. purchased a controlling interest in Martin Inc. on January 1, 2012, when Martin's common stock
Question:
Davis Inc. purchased a controlling interest in Martin Inc. on January 1, 2012, when Martin'scommon stock and retained earnings were carried at $180,000 and $60,000 respectively. Onthat date, Martin's book values approximated its fair market values, with the exception of thecompany's inventories and a Patent held by Martin. The patent, which had an estimatedremaining useful life of ten years, had a fair market value which was $20,000 higher than itsbook value. Martin's inventories on January 1, 2012 were estimated to have a fair value thatwas $16,000 higher than their book value.It was predicted that Martin's goodwill impairment test, which was to be conducted onDecember 31, 2013, would result in a loss equal to 10% of the goodwill (regardless of theamount) at the date of acquisition being recorded. During 2012, Martin reported a net incomeof $60,000 and paid $12,000 in dividends. Martin's 2013 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, please show your calculations/work as to how the acquisition differential amortization is 18,000?