Situation 1 Larkspur Cosmetics acquired 10 of the 184000 sha

Situation 1
Larkspur Cosmetics acquired 10% of the 184,000 shares of common stock of Martinez Fashion at a total cost of $13 per share on March 18, 2017. On June 30, Martinez declared and paid $69,400 cash dividend to all stockholders. On December 31, Martinez reported net income of $113,000 for the year. At December 31, the market price of Martinez Fashion was $14 per share.

Situation 2
Cullumber, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles’s 31,400 outstanding shares of common stock at a total cost of $9 per share on January 1, 2017. On June 15, Seles declared and paid cash dividends of $39,100. On December 31, Seles reported a net income of $85,000 for the year.

Prepare all necessary journal entries in 2017 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.)

Solution

Situation 1 Journal Entries Date Accounting titles & Explanations Debit Credit 2017 18-Mar Available for sale securities 239200 cash 239,200 (184,000*10%*13) 30-Jun Cash 6,940 Dividend income 6,940 (69,400*10%) 31-Dec Fair value adjustmend 18,400 Unrealized holding gain or loss 18,400 (18,400*1) Situation 2 Journal Entries Date Accounting titles & Explanations Debit Credit 2017 1-Jan Investment in Seles Corp Stock 84780 Cash 84,780 (31,400*30%*9) 15-Jun Cash 11730 Investment in Seles corp stock 11,730 (39,100*30%) 31-Dec investment in Seles Corp Stock 25500 Revenue 25,500 (85000*30%)