Question

On January 1, 2017, Fisher Corporation purchased 40 percent (74,000 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 $90,000 cash dividend to its stockholders each year on September 15. Bowden reported net income of $400,000 in 2017 and $352,000 in 2018. Each income figure was earned evenly throughout its respective year.

On July 1, 2018, Fisher sold 10 percent (18,500 shares) of Bowden's outstanding shares for $320,000 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.)

Record cost of 74,000 shares of Bowden Company.​

Record the annual dividend declared and received from Bowden.

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

Record amortization of $66,000 excess patent fair value [indicated in problem] over 15 years.

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

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

Record 18,500 shares of Bowden Company sold; investment basis computed below.

Record annual dividend declared and received.

Record ½ year income based on remaining 30% ownership.

Record ½ year of patent amortization.

Answer 1

• 	Journal entries for Fisher for the year 2017 and 2018
  1	Investment in Bowden Inc.	$978,000
  	Cash		$978,000
  2	Cash	$36,000
  	Investment in Bowden Inc.		$36,000
  3	Investment in Bowden Inc.	$160,000
  	Income from Bowden		$160,000
  4	Amortization expense	$4,400
  	Investment in Bowden Inc.		$4,400
  5	Investment in Bowden Inc.	$70,400
  	Income from Bowden		$70,400
  6	Amortization expense	$2,200
  	Investment in Bowden Inc.		$2,200
  7	Cash	$320,000
  	Gain on sale of investment		$28,550
  	Investment in Bowden Inc.		$291,450
  8	Cash	$27,000
  	Investment in Bowden Inc.		$27,000
  9	Investment in Bowden Inc.	$52,800
  	Income from Bowden		$52,800
  10	Amortization expense	$2,200
  	Investment in Bowden Inc.		$2,200

  Working note:
  Cash Dividend	$90,000
  Fisher's share	40%
  Fisher's dividend income	$36,000
  2017 Income	$400,000
  Net income	$400,000
  Fisher's share	40%
  Fisher's equity income	$160,000
  Patent fair value	$66,000
  Estimated life	15
  Amortization per year	$4,400
  2018 income	$352,000
  2018 1/2 year income	$176,000
  1/2 year income	$176,000
  Fisher's equity income for 1/2 year (40%)	$70,400
  Investment in Bowden Inc.	$978,000
  Add: Investment income for 2017	$160,000
  Less: Dividend income	$36,000
  Less: Amortization expense	$4,400
  Investment value on 1/1/2018	$1,097,600
  Add: Investment income for 2018 1/2 year	$70,400
  Less: Amortization for 1/2 year	$2,200
  Investment value on 7/1/2018	$1,165,800
  Shares held	74,000
  Investment value per share	$15.75
  Value for 18500 share	$291,450
  Cash Dividend	$90,000
  Fisher's share	30%
  Fisher's dividend income	$27,000
  2018 Income	$352,000
  1/2 year income	$176,000
  Net income	$176,000
  Fisher's share	30%
  Fisher's equity income	$52,800