The following are two independent situations. Situation 1 Novak Cosmetics acquir

Question

The following are two independent situations.

Situation 1
Novak Cosmetics acquired 10% of the 215,000 shares of common stock of Martinez Fashion at a total cost of $14 per share on March 18, 2017. On June 30, Martinez declared and paid $73,300 cash dividend to all stockholders. On December 31, Martinez reported net income of $131,600 for the year. At December 31, the market price of Martinez Fashion was $15 per share.

Situation 2
Splish, Inc. obtained significant influence over Seles Corporation by buying 40% of Seles’s 32,700 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 $32,800. On December 31, Seles reported a net income of $89,100 for the year.

Prepare all necessary journal entries in 2017 for both situations.

Explanation / Answer

situation 1-

To record the purchase of Share -

mar18 Available for Cash securities 301000 Cash {(215000x 10%) x 14}    301000

To record the Dividend Revenue -

Jun30 Cash 7330 Dividend Revenue (73300x 10%) 7330

To record the investment at fair value -

Dec31 Security Fair value Adjustment [(15-14)x 21500} 21500 unrealized holding Gain -loss equity 21500

Situation 2

To record the purchase of commom stock :

Jan1 Invest in Seles corporation Stock 130800 cash [(32700x 40%)x 10] 130800

to record receipt of cash dividend :

Jun15 Cash (32800x 40%) 13120 Investment in seles Corporation 13120

to record splish share in Seles corporation

Dec 31 Investment in Seles Corporation stock 35640 Revenue(89100x 40%) 35640

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