Question

The following are two independent situations.

1. Conchita Cosmetics acquired 10% of the 210,100 shares of common stock of Martinez Fashion at a total cost of $15 per share on March 18, 2014. On June 30, Martinez declared and paid a $77,700 cash dividend. On December 31, Martinez reported net income of $122,500 for the year. At December 31, the market price of Martinez Fashion was $17 per share. The securities are classified as available-for-sale.
2. Monica, Inc. obtained significant influence over Seles Corporation by buying 33% of Seles's 33,500 outstanding shares of common stock at a total cost of $11 per share on January 1, 2014. On June 15, Seles declared and paid a cash dividend of $45,800. On December 31, Seles reported a net income of $94,600 for the year.
Prepare all necessary journal entries in 2014 for both situations.

Answer 1

Journal entries are given below

Step-by-step explanation:

All necessary journal entries in 2014 for both situations.

Situation 1

March 18, 2014 (Conchita Cosmetics acquired 10% of the 210,100 shares of common stock of Martinez Fashion at a total cost of $15 per share)

DEBIT CREDIT

Stock $3,151,500

Cash $3,151,500

June 30 ( Martinez paid a $77,700 cash dividend)

DEBIT CREDIT

Cash $77,700

Dividend Income $77,700

December 31 (the market price of Martinez Fashion was $17 per share)

DEBIT CREDIT

Securities $420,200

Unrealized gain $420,200

Working

Gain = $17 - $15 = $2 x 210,100

Gain =420,200

Situation 2

January 1, 2014 (Monica, Inc. acquired 33% of Seles's 33,500 outstanding shares of common stock at a total cost of $11 per share)

DEBIT CREDIT

Cash $368,500

Dividend Income $368,500

On June 15 ( Seles declared and paid a cash dividend)

DEBIT CREDIT

Cash $45,800

Dividend Income $45,800