Question

Kingbird Cosmetics acquired 10% of the 212,000 shares of common stock of Martinez Fashion at a total cost of $13 per share on March 18, 2020. On June 30, Martinez declared and paid $76,400 cash dividend to all stockholders. On December 31, Martinez reported net income of $125,800 for the year. At December 31, the market price of Martinez Fashion was $14 per share. Situation 2 Oriole, Inc. obtained significant influence over Seles Corporation by buying 40% of Seles’s 31,700 outstanding shares of common stock at a total cost of $9 per share on January 1, 2020. On June 15, Seles declared and paid cash dividends of $33,100 to all stockholders. On December 31, Seles reported a net income of $77,900 for the year. Prepare all necessary journal entries in 2020 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 0 for the amounts.)

Answer 1

Sure, I can help you prepare the necessary journal entries for both situations in 2020.

**Situation 1 - Kingbird Cosmetics:**

1. To record the acquisition of Martinez Fashion shares:
- Debit: Investment in Martinez Fashion Stock $27,120 (10% of 212,000 shares * $13 per share)
- Credit: Cash $27,120

2. To record the receipt of cash dividend from Martinez Fashion:
- Debit: Cash $7,640 (10% of $76,400)
- Credit: Dividend Revenue $7,640

3. To record Kingbird's share of Martinez Fashion's net income:
- Debit: Investment in Martinez Fashion Stock $12,580 (10% of $125,800)
- Credit: Equity in Earnings of Martinez Fashion $12,580

**Situation 2 - Oriole, Inc:**

1. To record the acquisition of Seles Corporation shares:
- Debit: Investment in Seles Corporation Stock $114,300 (40% of 31,700 shares * $9 per share)
- Credit: Cash $114,300

2. To record the receipt of cash dividend from Seles Corporation:
- Debit: Cash $13,240 (40% of $33,100)
- Credit: Dividend Revenue $13,240

3. To record Oriole's share of Seles Corporation's net income:
- Debit: Investment in Seles Corporation Stock $31,160 (40% of $77,900)
- Credit: Equity in Earnings of Seles Corporation $31,160

These journal entries reflect the transactions for both situations in 2020. Please consult with a professional accountant or financial advisor to ensure accuracy and compliance with accounting standards.