An investor company purchases a 25% interest in an investee
company and the investor concludes that it can exert significant
influence over the investee. The book value of the investees
stockholders equity on the acquisition date is $500,000 and the
investor purchases its 25% interest for $145,000. The investor is
willing to pay the purchase price because the investee owns an
unrecorded( internally developed) patent with a fair value equal to
$80,000. The patent has a remaining useful life of 10 years.
Subsequent to the acquisition, the investee reports net income of
$100,000 and pays a cash dividend to the investor of $20,000. At
the end of the first year the investor sells the equity investment
for $180,000. Prepare all of the required journal entries to
account for this equity investment during the year