Problem
Equity method journal entries (price greater than book value)
An investor company purchases a 20% 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 $500,000 and the investor purchases its 20% interest for $130,000 The investor is willing to pay the purchase price because the investee owns an unrecorded (internally developed) patent with a fair value equal to $130,000 The patent has a remaining useful life of 10 years. Subsequent to the acquisition, the investee reports net income of $120,000 and pays a cash dividend to the investor of $10,000 At the end of the first year, the investor sells the Equity Investment for $160,000
What are the required journal entries to account for this Equity Investment during the year?