Question

On January 1, 2017, Fisher Corporation purchased 40 percent (90,000 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 $48,000 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 $90,000 cash dividend to its stockholders each year on September 15. Bowden reported net income of $400,000 in 2017 and $348,000 in 2018. Each income figure was earned evenly throughout its respective year.

On July 1, 2018, Fisher sold 10 percent (22,500 shares) of Bowden's outstanding shares for $338,000 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.)

• 1 Record cost of 90,000 shares of Bowden Company.

• 2 Record the annual dividend declared and received from Bowden.

• 3 Record accrue 2017 income based on 40% ownership of Bowden.

• 4 Record amortization of $48,000 excess patent fair value [indicated in problem] over 15 years.

• 5Record the entry to accrue ½ year income of 40% ownership.

• 6Record ½ year amortization of patent to establish correct book value for investment as of 7/1/18.

• 7Record 22,500 shares of Bowden Company sold; investment basis computed below.

• 8Record annual dividend declared and received.

• 9 Record ½ year income based on remaining 30% ownership.

• 10Record ½ year of patent amortization.

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Answer 1

Journal Entries

Date	Particulars	Debit $	Credit $
1	Investment in Bowden	980,000
	To Cash		980,000
2	Cash	36,000
	To Investment in Bowden		36,000
	(900,000 * 40%)
3	Investment in Bowden	160,000
	To Equity in Investee Income		160,000
	(400,000 * 40%)
4	Equity in Investee Income	3,200
	To Investment in Bowden		3,200
	Amortization of $48,000 excess patent fair value [indicated in problem] over 15 years. 48,000/15
5	Investment in Bowden	69,600
	To Equity in Investee Income		69,600
	(348,000 * 40% * 1/2) 1/2 year accrued Income
6	Equity in Investee Income	1,600
	To Investment in Bowden		1,600
	(1/2 year amortization) (3,200/2)
7	Cash	338,000
	To Investment in Bowden		292,200
	To Gain on sale of Investment		45,800
8	Cash	27,000
	To Investment in Bowden		27,000
	(30% of 90,000) Dividend Declared
9	Investment in Bowden	52,200
	To Equity in Investee income		52,200
	(348,000 * 30% * 1/2) 1/2 year accrued Income
10	Equity In Investee Income	1,200
	To Investment in Bowden		1,200

Working Note :

• Cost of Shares sold

  Acquisition	980,000
  Less: Dividend	(36,000)
  Basic Equity Accrual	160,000
  Amortization	(3,200)
  Basic Equity Accrual	69,600
  Amortization	(1,600)
  Total Investment (cost)	1,168,800
  Percentage of Shares Sold (22,500/90,000)	25%
  So Cost of Shares sold	292,200

  22,500 of 90,000 shares are sold..means 25% or 1/4. So percentage retained are 3/4 of 40%= 30%

• Patent Amortization

  Annual patent Amortization	3,200
  Percentage of Shares Retained	75%
  Annual Patent Amortization	2,400
  Half year Amortization	1,200