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 "Na journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest whole dollar.) General Journal Debit Credit No 1 Date 01/01/2017 2 09/15/2017 36,000 36,000 Dividend income Investment in Bowden Cash Dividend income 36,000 36.000 12/31/2017 Investment in Bowden 160,000 160,000 12/31/2017 07/01/2018 Investment in Bowden 69,600 69,600

Answer 1

No	Date	General Journal	Debit	Credit
1	1/1/2017	Investment in Bowden Inc.	$932,000
		Goodwill	$48,000
		Cash		$980,000
		(to record the purchase of 40% of common stock of Bowden Inc.,)
2	9/15/2017	Dividends received	$36,000
		Investment in Bowden Inc.		$36,000
		(to record the dividend received from Bowden Inc.)
3	12/31/2017	Investment in Bowden Inc.	$160,000
		Equity Income		$160,000
		(to record the share of profits for 2017 received from Bowden Inc,)
4	12/31/2017	Amortization expenses - Patents	$3,200
		Goodwill		$3,200
		(to record the amortization of patents against which the excess value was paid at
		the time of purchase of shares of Bowden Inc.,)
5	7/1/2018	Investment in Bowden Inc.	$69,600
		Equity Income		$69,600
		(to record the share of profits upto 30 June 2018 receivable from Bowden Inc,)
6	7/1/2018	Cash	$338,000
		Investment in Bowden Inc.		$281,400
		Goodwill		$10,800
		Profit on sale of Investment		$45,800
		(to record the sale of 10% equity shares of Bowden Inc.)
8	9/15/2018	Dividends received	$27,000
		Investment in Bowden Inc.		$27,000
		(to record the dividend received from Bowden Inc.on the remaining 30% share)
9	12/31/2018	Investment in Bowden Inc.	$52,200
		Equity Income		$52,200
		(to record the share of profits for 2018 from July to Dec received from Bowden Inc,)
10	12/31/2018	Amortization expenses - Patents	$2,800
		Goodwill		$2,800
		(to record the amortization of patents against which the excess value was paid at
		the time of purchase of shares of Bowden Inc.,)
Working Notes
Amortization costs of patents for which excess consideration was paid and recorded as goodwill.
	2017
40% of the total value of patents	$48,000
Total value of patents	$120,000
Useful life of the patents (in years)	15
Annual amortization expenses	$8,000
Share of Amortization expenses of Fisher Corporation @ 40% in 2017	$3,200
2018
Share of Amortization expenses of Fisher Corporation @ 40% in 2018	$3,200
Share of Amortization expenses of Fisher Corporation @ 40% upto June 2018	$1,600
Carrying value of Goodwill on 01 July 2018
Original Value	$48,000
Less:
Amortization for 2017	($3,200)
Amortization for 2018 upto 01 July 2018	($1,600)
Carrying value of Goodwill on 01 July 2018	$43,200
Carrying value of Goodwill included in sale of 10% of shares of Bowden Inc.	$10,800
Carrying value of Goodwill representing balance 30% of shares of Bowden Inc.	$32,400
Amortization for 2018 for 30% of the total value for half year	$1,200
Amortization for 2018 upto 01 July 2018 for 40% of total year for half year	$1,600
Value of Investment on the date of sale
		Investment in Bowden Inc.	Goodwill
Initial amount paid on Jan 01,2017	$932,000	$48,000
Dividends received from Bowden Inc. in 2017	($36,000)
Share of Income in Bowden Inc., for 2017	$160,000
Amortization expenses for 2017 - Patents		($3,200)
Share of Income in Bowden Inc., for 2018 as on July 01,2018	$69,600
Amortization expenses for 2018 upto 01 July 2018		($1,600)
Carrying value of investments as on July 01,2018	$1,125,600	$43,200
Carrying value of investments sold on July 01,2018	$281,400	$10,800