E12-8 . Presented below are two independent situations. Gambino Cosmetics acquir
ID: 2492220 • Letter: E
Question
E12-8. Presented below are two independent situations.
Gambino Cosmetics acquired 10% of the 200,000 shares of common stock of Nevins Fashion at a total cost of $13 per share on March 18, 2015. On June 30, Nevins declared and paid a $60,000 dividend. On December 31, Nevins reported net income of $122,000 for the year. At December 31, the market price of Nevins Fashion was $15 per share. The stock is classied as available-for-sale.
Kanza, Inc., obtained signicant inuence over Rogan Corporation by buying 40% of Rogan’s 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2015. On June 15, Rogan declared and paid a cash dividend of $30,000. On December 31, Rogan reported a net income of $80,000 for the year.
Instructions
Prepare all the necessary journal entries for 2015 for (a) Gambino Cosmetics and (b) Kanza, Inc.
Explanation / Answer
Solution:
1) Journal Entries for Gambino Cosmetics:
Available for sale
Cost = 20,000 * 13 = 260,000
FMV = 20,000 * 15 = 300,000
Unrealized gain or loss - Equity = (15 - 13) * 20,000 = 40,000
2) Journal Entries for Kanza, Inc:
Date General Journal Debit Credit March, 18 Stock investment 260,000 Cash (20,000 * 13) 260,000 (To record the purchase of 10% of Nevins Fashion’s common stock) June, 30 Cash 6,000 Dividends revenue (60,000 * 10%) 6,000 (To record the dividend revenue from Nevins Fashion) Dec, 31 Fair value adjustment 40,000 Unrealized gain or loss - Equity 40,000 (To record the investment at fair value)Related Questions
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