On January 1, 2018, May Inc. purchased 15% (22,500 shares) of the outstanding common shares of Fisher Co. for $200,000. At this time, all of Fisher’s assets and liabilities were properly recorded at book values that equaled their fair values. May accounted for this investment using the fair value method.

On January 1, 2020, May acquired an additional 30% of the outstanding common stock of Fisher, paying $600,000. On that date, the fair value of Fisher’s common stock was $3,600,000 in total. Fisher’s January 1, 2020, book value equaled $2,400,000. Any additional excess fair value over Fisher’s book value was attributed to a patent with a 10-year remaining useful life. All other assets and liabilities are equal to their book values at the date of the acquisition.

For 2020 Fisher reports a net income of $400,000 and pays $180,000 of dividends.

On January 1, 2021, may sell 4.5 percent (6,750 shares) of Fisher’s outstanding shares for $120,000 cash. May maintained the ability to significantly influence Fisher’s decision-making process.

Required:

1. Provide May’s journal entry to recognize the 2020 Equity in Fisher’s Earnings

2. Prepare May’s journal entry to record receipt of the 2020 dividend from Fisher.

3. Compute the balance in May’s Investment in Fisher account at the end of 2020.

4. Prepare May’s journal entry to record the sale of its ownership in Fisher on January 1, 2021.

Answer rating: 100% (QA)

Journal entry significant investment equity method Date Accounts De... View the full answer