Question

On January 1, 2017, Fisher Corporation purchased 40 percent (82,000 shares) of the common stock of Bowden, Inc. for $974,000 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 $100,000 cash dividend to its stockholders each year on September 15. Bowden reported net income of $414,000 in 2017 and $358,000 in 2018. Each income figure was earned evenly throughout its respective year. On July 1, 2018, Fisher sold 10 percent (20,500 shares) of Bowden's outstanding shares for $330,000 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.)

Answer 1

No.	Date	General Journal	Debit	Credit
1	01/01/2017	Investment in Bowden	974000
		Cash		974000
2	09/15/2017	Investment in Bowden	32800
		Cash (82000*40%)		32800
3	12/31/2017	Investment in Bowden	165600
		Equity in investee income (414000*40%)		165600
4	12/31/2017	Equity in investee income	4400
		Investment in Bowden (66000/15)		4400
5	07/01/2018	Investment in Bowden	71600
		Equity in investee income (358000*40%*6/12)		71600
6	07/01/2018	Equity in investee income	2200
		Investment in Bowden (66000/15)*6/12		2200
7	07/01/2018	Cash	330000
		Investment in Bowden		292950
		Gain on sale of investment		37050
8	09/15/2018	Cash	30000
		Investment in Bowden (100000*30%)		30000
9	12/31/2018	Investment in Bowden	62100
		Equity in investee income (414000*30%*6/12)		62100
10	12/31/2018	Equity in investee income	1650
		Investment in Bowden		1650

Investment in Bowden and cost of shares sold:

1/1/17 Acquisition	974000
9/15/17 Dividends	(32800)
12/31/17 Basic equity accrual	165600
12/31/17 Amortization	(4400)
7/1/18 Basic equity accrual	71600
7/1/18 Amortization	(2200)
Investment in Bowden—7/1/18 balance	1171800
Percentage of shares sold (20,500 ÷ 82,000)	25%
Carrying amount of shares sold	292950

Because 20,500 of 82,000, or ¼, of shares are sold, the percentage retained is ¾ of 40% = 30%

Annual patent amortization—original computation	4400
Percentage of shares retained (61,500 ÷ 82,000)	75%
Annual patent amortization—current	3300
Patent amortization for half year	1650