Question

On January 1, 2017, Fisher Corporation purchased 40 percent (86,000 shares) of the common stock of Bowden, Inc. for $980,000 in cash and began to use the equity method for the investment. The price paid represented a $60,000 payment in excess of the book value of Fisher's share of Bowden's underlying net assets. Fisher was willing to make this extra payment because of a recently developed patent held by Bowden with a 15-year remaining life. All other assets were considered appropriately valued on Bowden's books.

Bowden declares and pays a $100,000 cash dividend to its stockholders each year on September 15. Bowden reported net income of $382,000 in 2017 and $358,000 in 2018. Each income figure was earned evenly throughout its respective year.

On July 1, 2018, Fisher sold 10 percent (21,500 shares) of Bowden's outstanding shares for $322,000 in cash. Although it sold this interest, Fisher maintained the ability to significantly influence Bowden's decision-making process.

Prepare the journal entries for Fisher for the years of 2017 and 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest whole dollar.)

Answer 1

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Solution: Naming convention is not available, can be slightly different ournal Entries Date Account title and explaination Debit Credit 1) 1/1/2017 Investment in Bowden 980000 Cash 980000 To record the investment) 2) 9/15/2017 Cash (100000*40%) 40000 Investment in Bowdern 40000 To record the adjustment of dividend received) 3) 12/31/2017 Investment in Bowden (382000*40%) 152800 Equity in investee Income To record the income from investment) 152800 4) 12/31/2017 Equity in investee Income (60000/15) 4000 Investment in Bowdern 4000 To record the amortization of patent) 5) 7/1/2018 Investment in Bowden (358000*4096)/2 71600 Equity in investee Income To record the income from investment) 71600 6) 7/1/2018 Equity in investee Income (60000/15)/2 2000 Investment in Bowdern 2000 To record the amortization of patent)