On January 1, 2020, Fisher Corporation purchased 40 percent (80,000 shares) of the common stock of Bowden, Inc., for $982,000 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 2020 and $380,000 in 2021. Each income figure was earned evenly throughout its respective years.
On July 1, 2021, 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 2020 and 2021.
