Question

The following are two independent situations.

Situation 1: Conchita Cosmetics acquired 10% of the 204,600 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 $77,200 cash dividend. On December 31, Martinez reported net income of $123,100 for the year. At December 31, the market price of Martinez Fashion was $17 per share. The securities are classified as available-for-sale.

Situation 2: Monica, Inc. obtained significant influence over Seles Corporation by buying 32% of Seles's 32,800 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 $40,400. On December 31, Seles reported a net income of $87,500 for the year.

Required:

Prepare all necessary journal entries in 2014 for both situations.

Answer 1

Answer:

Explanation:

Situation 1:

March 18, 2014

investment at avialble for sale           3069000

                Cash                                           3069000

To record the Investment at available for sale.

June 30

Cash      77200

   dividend income 77200

To record the cash dividend.

December 31,

Cost of investment        =204600*15 =             3069000

F.value of investment    =204600*17 =             3478200

Gain/Loss                                            =                409200

investment at avialble for sale           409200

                Cash                                          409200

the invest is recorded at investment at avialble so the revaluation gain and loss will be recorded in the Other comprehensive income .

Situation 2:

invest in associate 360800

               Cash              360800      

To record the investment at cost

invest in associate (32800*4)   131200

               Revaluation gain P/L (32800*4)   131200

to record the revaluation gain on investment in assocaite

Cash 40400

   dividend income  40400

to record the dividend income