Question

On January 1, 2017, Fisher Corporation purchased 40 percent (72,000 shares) of the common stock of Bowden, Inc. for $992,000 in cash and began to use the equity method for the investment. The price paid represented a $54,000 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 $102,000 cash dividend to its stockholders each year on September 15. Bowden reported net income of $386,000 in 2017 and $354,000 in 2018. Each income figure was earned evenly throughout its respective year.

On July 1, 2018, Fisher sold 10 percent (18,000 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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Journal entries for Fisher for the year 2017 and 2018: Date Debit: Credit: Account titles and Explanation Investment in Bowden Cash 9,92,000 01-01-2017 $ 9,92,000 40,800* 09-15-2017 Cash Investment in Bowden * Cash dividend = $102,000 X 40% = $40,800 $ 40,800 1,54,400* 12-31-2017 Investment in Bowden Equity in investee income * Equity in investee income = $386,000 X 40% = $154,400 1,54,400 153,600* $ 3.600* 12-31-2017 12343042 Equity in investee income Investment in Bowden * Annual Amortization = $54,000/15 years = $3,600 $ 26001 3,600 07-01-2018 Investment in Bowden 70,800* Equity in investee income $ * Equity in investee income for 6 month = $354,000 X 40% X 1/2 year = $70,800 70,800 1,800* 07-01-2018 Equity in investee income Investment in Bowden * Half yearly amortisation = $3,600 X 1/2 year = $1,800 $ 1,800

Cash 3,22,000 07-01-2018 Investment in Bowden $ 2,92,750* Gain on sale of investment $ 29,250 * Carrying amount of share sold = $992,000-40,800+154,400-3,600+70,800-1,800 = $1,171,000 X.25 =$292,750 30,600* 09-15-2018 Cash Investment in Bowden * Cash dividend = $102,000 X 30% = $30,600 30,600 12-31-2018 Investment in Bowden $ 53,100* Equity in investee income $ * Equity in investee income for 6 month = $354,000 X 30% X 1/2 year = $53,100 53,100 1,350* 12-31-2018 Equity in investee income Investment in Bowden * Half yearly amortisation = $1,800 / 140 X.30 = $1,350 Bowden $ 1,350

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