On January 1, 2017, Fisher Corporation purchased 40 percent (86,000 shares) of t

Question

On January 1, 2017, Fisher Corporation purchased 40 percent (86,000 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 $60,000 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 $108,000 cash dividend to its stockholders each year on September 15. Bowden reported net income of $380,000 in 2017 and $340,000 in 2018. Each income figure was earned evenly throughout its respective year.

On July 1, 2018, Fisher sold 10 percent (21,500 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 "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 cost of 86,000 shares of Bowden Company.

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

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

4. Record amortization of $60,000 excess patent fair value [indicated in problem] over 15 years.

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

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

7. Record 21,500 shares of Bowden Company sold; investment basis computed below.

8. Record annual dividend declared and received.

9. Record ½ year income based on remaining 30% ownership.

10.Record ½ year of patent amortization.

accounts

Explanation / Answer

(Annual amortization expenses over 15 yrs

of useful life)

(Half yearly income received based on 30%

ownership for year 2018)

Workings

2.a 108000 x 40 % = 43200

   For 9 months -- 43200 / 12 x 9 = 32400

   For rest 15 days -- 43200 / 12 / 2 = 1800

   Ie -- as of September 15 2017 dividend will be = 32400 + 1800 = 34200

5.b 340000 / 2 = 170000

380000 + 170000 = 550000

   550000 x 40 % = 220000

9.c Haly yearly income based on remaining 30 % ownership

340000 x 6 / 12 = 170000

   170000 x 30 % = 51000

Particulars Debit Credit 1. Investment in Bowden a/c $974000 To Cash $974000 (Being amount paid to acquire sh) 2.a Dividend Receivable a/c $34200 To Investment in Bowden a/c $34200 (Annual dividend received as of Sep 15 2017) 3. Acrrued Income a/c (380000 x 40%) $152000 To Income a/c $152000 (Accrued Income received for year 2017) 4. Patient a/c $60000 To Cash $60000 (Purchase of patent for $60000) Amortization Expenses $4000 To Patent $4000

(Annual amortization expenses over 15 yrs

of useful life)

5.b Accrued Income a/c $220000 To Income a/c $220000 (Accrued income received over 1 and half yr) 6. Amortization Expenses $2000 To Patent $2000 (Half yearly amortization expense value) 7. Cash a/c $338000 To Sales $338000 (Cash sales of 21500 outstanding shares) 8. Dividend receivable a/c $43200 To Investment in Bowden a/c $43200 (Annual dividend received) 9.c Accrued Income a/c $51000 To Income a/c $51000

(Half yearly income received based on 30%

ownership for year 2018)

10. Amortization Expenses $2000 To Patient $2000 (Half yearly amortization expense value)

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