Linton Inc. purchased 75% of Marsh Inc. on January 1, 2019 for $1,000,000. Marsh's common shares and retained earnings were worth $400,000 each on that date. The acquisition differential was allocated as follows:
$\begin{array}{|l|r|}
\hline \text { Trademark } & \$ 15,000 \text { (which had not been previously recorded) } \
\hline \text { Inventory } & \$ 8,000 \text { (fair value in excess of book value) }\\hline
\end{array}$ The balance was allocated to goodwill. The trademark had an estimated remaining useful life of 10 years from the date of acquisition. Marsh Inc. uses straight line amortization.
In 2019, Marsh's net income was $40,000. Marsh declared and paid $5,000 in dividends to shareholders on record as at December 31, 2019. In 2020, Marsh reported a net income of $8,000 and declared and paid $1,000 in dividends.
Required:
a) Prepare the equity method journal entries for Linton for 2019 and 2020.
b) Calculate the value of Marsh's trademark as at December 31, 2020.
c) Prepare a statement that shows the changes in Linton's non-controlling interest in 2020.

Question

Linton Inc. purchased 75% of Marsh Inc. on January 1, 2019 for $1,000,000. Marsh's common shares and retained earnings were worth $400,000 each on that date. The acquisition differential was allocated as follows:
 $\begin{array}{|l|r|}
\hline \text { Trademark } & \$ 15,000 \text { (which had not been previously recorded) } \
\hline \text { Inventory } & \$ 8,000 \text { (fair value in excess of book value) }\\hline
\end{array}$ The balance was allocated to goodwill. The trademark had an estimated remaining useful life of 10 years from the date of acquisition. Marsh Inc. uses straight line amortization.
In 2019, Marsh's net income was $40,000. Marsh declared and paid $5,000 in dividends to shareholders on record as at December 31, 2019. In 2020, Marsh reported a net income of $8,000 and declared and paid $1,000 in dividends.
Required:
a) Prepare the equity method journal entries for Linton for 2019 and 2020.
b) Calculate the value of Marsh's trademark as at December 31, 2020.
c) Prepare a statement that shows the changes in Linton's non-controlling interest in 2020.

Quizplus · Accepted Answer

The Answer of Linton Inc. purchased 75% of Marsh Inc. on January 1, 2019 for $1,000,000. Marsh's common shares and retained earnings were worth $400,000 each on that date. The acquisition differential was allocated as follows:
 $\begin{array}{|l|r|}
\hline \text { Trademark } & \$ 15,000 \text { (which had not been previously recorded) } \
\hline \text { Inventory } & \$ 8,000 \text { (fair value in excess of book value) }\\hline
\end{array}$ The balance was allocated to goodwill. The trademark had an estimated remaining useful life of 10 years from the date of acquisition. Marsh Inc. uses straight line amortization.
In 2019, Marsh's net income was $40,000. Marsh declared and paid $5,000 in dividends to shareholders on record as at December 31, 2019. In 2020, Marsh reported a net income of $8,000 and declared and paid $1,000 in dividends.
Required:
a) Prepare the equity method journal entries for Linton for 2019 and 2020.
b) Calculate the value of Marsh's trademark as at December 31, 2020.
c) Prepare a statement that shows the changes in Linton's non-controlling interest in 2020.

Linton Inc The Balance Was Allocated to Goodwill