Reference no: EM131739427

Question: Equity method journal entries (price greater than book value)

An investor purchases a 30% interest in an investee company, and the investor concludes that it can exert significant influence over the investee. The book value of the investee's Stockholders' Equity on the acquisition date is $400,000, and the investor purchases its 30% interest for $156,000. The investor is willing to pay the purchase price because the investee owns an unrecorded (internally developed) patent that the investor estimates is worth $120,000. The patent has a remaining useful life of 10 years. Subsequent to the acquisition, the investee reports net income of $90,000, and pays a cash dividend to the investor of $13,000. At the end of the first year, the investor sells the Equity Investment for $195,000. Prepare all of the required journal entries to account for this Equity Investment during the year.