Question

On January 1, 2020, Fisher Corporation purchased 40 percent (80,000 shares) of the common stock of Bowden, Inc., for $978,000 in cash and began to use the equity method for the investment. The price paid represented a $66,000 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 $396,000 in 2020 and $360,000 in 2021. Each income figure was earned evenly throughout its respective years.

On July 1, 2021, Fisher sold 10 percent (20,000 shares) of Bowden's outstanding shares for $334,000 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 2020 and 2021. (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 acquisition of Bowden's shares.

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

• 3 Record the accrual of income for 2020.

• 4 Record amortization for 2020.

• 5 Record the accrual of income through 07/01/21.

• 6 Record amortization through 07/01/21.

• 7 Record the sale of the shares.

• 8 Record annual dividend declared and received.

• 9 Record the accrual of income for the second half of the year.

• 10 Record the amortization for the second half of the year.

Answer 1

Solution:

Preparing the Journal Entries for Fisher for the Years of 2020 and 2021:

Date	General Journal	Debit	Credit
1/1/20	Investment in Bowden	$978,000
	Cash		$978,000
	(To record cost of 80,000 shares of Bowden Company)
9/15/20	Cash	$40,800
	Investment in Bowden		$40,800
	(Annual dividend declared and received from Bowden [40% * $102,000])
12/31/20	Investment in Bowden	$158,400
	Equity in Investee Income		$158,400
	(To accrue 2020 income based on 40%ownership of Bowden)
12/31/20	Equity in Investee Income	$4,400
	Investment in Bowden		$4,400
	(Amortization of $66,000 excess patent fair value [indicated in problem] over 15 years)
7/1/21	Investment in Bowden	$72,000
	Equity in Investee Income		$72,000
	(To accrue half year income of 40% ownership = $360,000 * 1/2 * 40%)
7/1/21	Equity in Investee Income	$2,200
	Investment in Bowden		$2,200
	(To record half year amortization of patentto establish correct book value for investment as of 7/1/18)
7/1/21	Cash	$334,000
	Investment in Bowden		$290,250
	Gain on Sale of Investment		$43,750
	(20,000 shares of Bowden Company sold; investment basis computed below)

Investment in Bowden and cost of shares sold:

1/1/20 Acquisition	$978,000
9/15/20 Dividends	($40,800)
12/31/20 Basic equity accrual	$158,400
12/31/20 Amortization	($4,400)
7/1/21Basic equity accrual	$72,000
7/1/21 Amortization	($2,200)
Investment in Bowden - 7/1/21 balance	$1,161,000
Percentage of shares sold (20,000 / 80,000)	* 25%
Carrying amount of shares sold	$290,250

Date	General Journal	Debit	Credit
9/15/21	Cash	$30,600
	Investment in Bowden		$30,600
	(To record annual dividend declared and received)
12/31/21	Investment in Bowden	$50,400
	Equity in Investee Income		$50,400
	(To record 1/2 year income based onremaining 30% ownership: $336,000 * 1/2 * 30%)
12/31/21	Equity in Investee Income	$1,650
	Investment in Bowden		$1,650
	(To record 1/2 year of patent amortization computation presented below)

Annual patent amortization - original computation	$4,400
Percentage of shares retained (60,000 / 80,000)	75%
Annual patent amortization - current	$3,300
Patent amortization for half year	$1,650