Question

Wildhorse Cosmetics acquired 15% of the 120,500 shares of common stock of Nevins Fashion at a total cost of $13 per share on March 18, 2020. On June 30, Nevins declared and paid a $67,900 dividend. On December 31, Nevins reported net income of $120,900 for the year. At December 31, the market price of Nevins Fashion was $15 per share.

Answer 1

Answer & Explanation:

Wildhorse Cosmetics:

Date Account Titles Debit ($) Credit ($)

March 18, 2017 Available-for-sale securities

( 120,500 x 15% x $ 13) 234,975

Cash 234,975

June 30, 2017 Cash ( $ 67,900 x 15%) 10,195

Dividend revenue 10,195

December Fair value adjustment

( $ 2 x 18,075) 36,150

Other comprehensive income

-unrealized gain on available-

for sale securities 36,150

Note that

Fair-value adjustment = (current share price - previous share price) x 15% of total nevins shares

= ($15 - $13) x 15% of 120,500

= $2 x 18,075 = 36,150