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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, 2018.

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

Calculation of investment in webb by Bourne inc

Acquisition cost $5, 000, 000

sdd net income (1, 000, 000*50/10) $500, 000

- - - - - - - - - - - - - - - - - - - - - - - - - - - -

sub total $5, 500, 000

less dividends ( 12, 00000*50/100) $600, 000

------------------------------------------------------------------

investment net dec31, 2018 $4, 900, 000

2) calculation of goodwill  

The difference between the acquisotion cost and the book

value 5, 000, 000 - 4, 000, 000= $1, 000, 000

note

book value of web 8000, 000*50/100 = $4, 000, 000

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