Heath Cosmetics acquired 15% of the 200,000 shares of common stock of Van Fashio

Question

Heath Cosmetics acquired 15% of the 200,000 shares of common stock of Van Fashion at a total cost of $13 per share on March 18, 2008. On June 30, Van declared and paid a $60,000 dividend. On December 31, Van reported net income of $122,000 for the year. At December 31, the market price of Van Fashion was $15 per share. The stock is classified as available-for-sale.

Yoder, Inc., obtained significant influence over Parks Corporation by buying 30% of Parks 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2008. On June 15, Parks declared and paid a cash dividend of $30,000. On December 31, Parks reported a net income of $80,000 for the year.

Instructions
Prepare all the necessary journal entries for 2008 for (a) Heath Cosmetics and (b) Yoder, Inc.

Explanation / Answer

a)Mar 18. Stock investments 390000. Cash 390000 June 30. Cash 9000 Dividend income 9000 Dec 31 dr stock investments 60000(30000 sharesx15 minues 390000) cr AFS reserve=60000. b)using equity method Jan 1 correct June 15 correct Dec 31 correct

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