Question

On January 1, 2017, Fisher Corporation purchased 40 percent (72,000 shares) of the common stock of Bowden, Inc. for $984,000 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 $98,000 cash dividend to its stockholders each year on September 15. Bowden reported net income of $410,000 in 2017 and $360,000 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 $326,000 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.

record 1/2 year of patent amortization:

Answer 1

Answer

Date	Accounts title	Debit	Credit
Jan 1, 2017	Investment in Bowden, Inc.	$    984,000
	Cash		$     984,000
	(To record Purchase of Investment.)
Sep 15, 2017	Cash	$       39,200
	Investment in Bowden, Inc.		$       39,200
	(To record Dividend Received.) (98000*40%)
Dec 31, 2017	Investment in Bowden, Inc.	$    164,000
	Income from equity investment		$     164,000
	(To record Income from Equity Investment.) (410000*40%)
Dec 31, 2017	Income from equity investment	$         3,600
	Investment in Bowden, Inc.		$          3,600
	(To record Amortization of patent) (54000/15)
Jul 1, 2018	Investment in Bowden, Inc. (360000*40%*6/12)	$       72,000
	Income from equity investment		$       72,000
	(To record Income from Equity Investment.) (Jan 2018 to June 2018 = 6 months)
Jul 1, 2018	Income from equity investment (3600*6/12)	$         1,800
	Investment in Bowden, Inc.		$          1,800
	(To record Amortization of patent)
Jul 1, 2018	Cash	$    326,000
	Investment in Bowden, Inc.		$     293,850
	Gain on sale of investment		$       32,150
	(To record Dividend Received.)
Sep 15, 2018	Cash	$       29,400
	Investment in Bowden, Inc.		$       29,400
	(To record Dividend Received.) (98000*30%)
Dec 31, 2018	Investment in Bowden, Inc. (360000*30%*6/12)	$       54,000
	Income from equity investment		$       54,000
	(To record Income from Equity Investment.) (July 2018 to Dec 2018 = 6 months) (share = 40% - 10% = 30%)
Dec 31, 2018	Income from equity investment (3600*6/12)*(30/40)	$         1,350
	Investment in Bowden, Inc.		$          1,350
	(To record Amortization of patent)

Calculation: Gain of sale of investment

Purchase of Investment	$        984,000
Dividend received 2017	$        (39,200)
Share in net income 2017	$        164,000
Amortization of patent	$          (3,600)
Share in net income for hald year (June 2018)	$          72,000
Amortization of patent for hald year (June 2018)	$          (1,800)
Book value of 40% interest	$    1,175,400
Sales of 10% interest	$        326,000
Less: book value of 10% interest (1175400*10/40)	$        293,850
Gain on sale of investment	$          32,150