The following are two independent situations. Situation 1 Conchita Cosmetics acq

Question

The following are two independent situations.

Situation 1

Conchita Cosmetics acquired 10% of the 216,800 shares of common stock of Martinez Fashion at a total cost of $13 per share on March 18, 2014. On June 30, Martinez declared and paid a $80,400 cash dividend. On December 31, Martinez reported net income of $123,400 for the year. At December 31, the market price of Martinez Fashion was $16 per share. The securities are classified as available-for-sale.

Situation 2

Monica, Inc. obtained significant influence over Seles Corporation by buying 31% of Seles’s 34,000 outstanding shares of common stock at a total cost of $10 per share on January 1, 2014. On June 15, Seles declared and paid a cash dividend of $43,300. On December 31, Seles reported a net income of $93,900 for the year. Prepare all necessary journal entries in 2014 for both situations

Explanation / Answer

Conchita Cosmetics Journal Entries Date Account Title Dr $ Cr $ Mar 18.2014. Cash       281,840.00 Investment in Available for sale Security-Martinez Fashion        281,840.00 ( purchase of 21680 shares of Martinez @13 per share) Jun 30.2014. Cash             8,040.00 Dividend Income           8,040.00 (recording 10% of total Martinez dividend as dividend income) Dec 31.2014. Revaluation Allowance -Avaialable for Sale security           65,040.00 Unrealized Holding Gain/(Loss) on Available for Sale Security -Thorugh OCI         65,040.00 ( Recording fair value adjustment on Dec 31 @$3 per share) Situation 2 Monica Inc. Date Account Title Dr $ Cr $ Jan 1.2014. Investment in Seles Corporation        105,400.00 Cash       105,400.00 ( Purchase of 31% (10540 shares) in Seles corp as Equity investment) June 15.2014. Cash           13,423.00 Investment in Seles Corporation         13,423.00 ( recording 31% dividend share of Seles Corp) Dec 31.2014. Investment in Seles Corporation           29,109.00 Equity Income -Seles Corporation         29,109.00 ( recording 31% of net income share of Seles Corp)

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