Question

Bourne, Inc. acquired 50% of David Webb Enterprises for $5,000,000 on January 1, 2018. The total...

Bourne, Inc. acquired 50% of David Webb Enterprises for $5,000,000 on January 1, 2018. The total fair value and book value of Webb’s identifiable net assets was $8,000,000 on that date. During 2018 Webb recognized net income of $1,000,000 and paid dividends of $1,200,000. Webb had a fair value of $11,000,000 as of December 31, 20

Required:
Determine the amounts that will be associated with the Investment in Webb account and the Goodwill calculated upon the purchase of Webb’s stock, assuming Bourne accounts for the Webb investment under the equity method.

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Answer #1
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Goodwill Calculation
Fair Value of Webb Assets $       8,000,000
Less: Consideration Received by Webb $     10,000,000
(5 million/50%)
Goodwill $       2,000,000
Investment in Webb Amount:
Initial Investment $       5,000,000
Less: Dividend Share 1200000*50% $           600,000
Add: Income Share 1000000*50% $           500,000
Investment Value December 2018 $       4,900,000
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