Question

On January 1, 2017, Fisher Corporation purchased 40 percent (80,000 shares) of the common stock of Bowden, Inc. for $976,000 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 $92,000 cash dividend to its stockholders each year on September 15. Bowden reported net income of $402,000 in 2017 and $346,000 in 2018. Each income figure was earned evenly throughout its respective year.

On July 1, 2018, Fisher sold 10 percent (20,000 shares) of Bowden's outstanding shares for $332,000 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 the entry to accrue 1/2 year income of 40% ownership.

2) Record 1/2 year amortization of patent to establish correct book value for investment as of 7/1/18

3) Record 20,000 shares of Bowden Company sold; investment basis computed below.

4) Record annual dividend declared and received.

Answer 1

No.	Date	General Journal	Debit	Credit
1	01/01/2017	Investment in Bowden	976000
		Cash		976000
2	09/15/2017	Investment in Bowden	36800
		Cash (92000*40%)		36800
3	12/31/2017	Investment in Bowden	160800
		Equity in investee income (402000*40%)		160800
4	12/31/2017	Equity in investee income	4000
		Investment in Bowden (60000/15)		4000
5	07/01/2018	Investment in Bowden	69200
		Equity in investee income (346000*40%*6/12)		69200
6	07/01/2018	Equity in investee income	2000
		Investment in Bowden (60000/15)*6/12		2000
7	07/01/2018	Cash	332000
		Investment in Bowden		290800
		Gain on sale of investment		41200
8	09/15/2018	Cash	27600
		Investment in Bowden (92000*30%)		27600
9	12/31/2018	Investment in Bowden	51900
		Equity in investee income (346000*30%*6/12)		51900
10	12/31/2018	Equity in investee income	1500
		Investment in Bowden		1500

Investment in Bowden and cost of shares sold:

1/1/17 Acquisition	976000
9/15/17 Dividends	(36800)
12/31/17 Basic equity accrual	160800
12/31/17 Amortization	(4000)
7/1/18 Basic equity accrual	69200
7/1/18 Amortization	(2000)
Investment in Bowden—7/1/18 balance	1163200
Percentage of shares sold (20,000 ÷ 80,000)	25%
Carrying amount of shares sold	290800

Because 20,000 of 80,000, or ¼, of shares are sold, the percentage retained is ¾ of 40% = 30%

Annual patent amortization—original computation	4000
Percentage of shares retained (60000 ÷ 80,000)	75%
Annual patent amortization—current	3000
Patent amortization for half year	1500