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 $100,000 cash dividend to its stockholders each year on september 15. bowden reported net income of $400,000 in 2017 and $380,000 in 2018. each income figure was earned evenly throughout its respective years.
on july 1, 2018, fisher sold 10 percent (20,000 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.