Schinzer Company purchases an influential 25% interest in Fowler Company on January 1, 2016, for $300,000. At that time, Fowler’s stockholders’ equity is $1,000,000.

Fowler Company assets have fair value similar to book value except for a building that is undervalued by $40,000. The building has an estimated remaining life of 10 years. Any remaining excess is attributed to goodwill.

The following additional information is available:

a. On July 1, 2016, Schinzer sells a machine to Fowler for $25,000. The cost of the machine to Schinzer is $16,000. The machine is being depreciated on a straight-line basis over five years.

b. Schinzer provides management services to Fowler at a billing rate of $15,000 per year. This arrangement starts in 2016.

c. Fowler has sold merchandise to Shinzer since 2017. Sales are $15,000 in 2017 and $20,000 in 2018. The merchandise is sold to provide a gross profit rate of 25%. Schinzer has $2,000 of these goods in its December 31, 2017, inventory and $3,000 of such goods in its December 31, 2018, inventory.

d. The income earned and dividends paid by Fowler are as follows:

Required
Prepare all entries required by Schinzer’s investment in Fowler Company for 2016 through 2018 using the equity method. Supporting schedules should be in good form. Ignore taxes.

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Dividends $60,000 10,000 10,000 Income Year 2016 2017 2018 $52,000 50,000 65,000