Question 3

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 Fishers 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 Fishers common stock was $3,600,000 in total. Fishers January 1, 2020, book value equaled $2,400,000. Any additional excess fair value over Fishers book value was attributed to a patent with a 10-year remaining useful life. All other assets and liabilities equal to their book values at the date of the acquisition.

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

On January 1, 2021, may sold 4.5 precent (6,750 shares) of Fishers outstanding shares for $120,000 cash. May maintained the ability to significantly influence Fishers decision-making process.

Required:

1. Provide Mays journal entry to recognize the 2020 Equity in Fishers Earnings

2. Prepare Mays journal entry to record receipt of the 2020 dividend from Fisher.

3. Compute the balance in Mays Investment in Fisher account at the end of 2020.

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