The following are two independent situations. Situation 1 Indigo Cosmetics acqui

Question

The following are two independent situations. Situation 1 Indigo Cosmetics acquired 10% of the 198,000 shares of common stock of Martinez Fashion at a total cost of $12 per share on March 18, 2017. On June 30, Martinez declared and paid $82,000 cash dividend to all stockholders. On December 31, Martinez reported net income of $119,400 for the year. At December 31, the market price of Martinez Fashion was $13 per share Situation 2 sweet, Inc. obtained significant influence over seles Corporation by buying 40% of Seles's 28,200 outstanding shares of common stock at a total cost of $10 per share on January 1, 2017, On June 15, Seles declared and paid cash dividends of $36,300. On December 31, Seles reported a net income of $87,100 for the year. Prepare all necessary journal entries in 2017 for both situations. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts) Date Account Titles and Explanation Debit Credit Situation 1: indigo cosmetics Situation 2: Sweet, Inc

Explanation / Answer

Solution:

Journal Entries - Indigo Cosmetic Date Particulars Debit Credit 18-Mar-17 Equity Investment Dr (19800*$12) $237,600.00        To Cash $237,600.00 (To record investment in schuberger corporation) 30-Jun-17 Cash Dr ($82,000*10%) $8,200.00       To Dividend Revenue $8,200.00 (To record dividend received) 31-Dec-17 Fair value adjustment Dr [19800*($13-$12)] $19,800.00       To Unrealized holding gain or loss - OCI $19,800.00 (To record fair value adjustment on investment)

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