Question

The following are two independent situations.

Situation 1
Grouper Cosmetics acquired 10% of the 193,000 shares of common stock of Martinez Fashion at a total cost of $12 per share on March 18, 2017. On June 30, Martinez declared and paid $81,400 cash dividend to all stockholders. On December 31, Martinez reported net income of $110,100 for the year. At December 31, the market price of Martinez Fashion was $13 per share.

Situation 2
Monty, Inc. obtained significant influence over Seles Corporation by buying 40% of Seles’s 30,300 outstanding shares of common stock at a total cost of $8 per share on January 1, 2017. On June 15, Seles declared and paid cash dividends of $38,400. On December 31, Seles reported a net income of $90,700 for the year.

Prepare all necessary journal entries in 2017 for both situations.

Answer 1

Situation 1 :-

Date	Particulars	Debit($)	Credit($)
18 Mar 2017	Investment in available for sale securities A/c Dr.	2316000
	To Cash A/c (193000*$12)		2316000
30 Jun 2017	Cash A/c Dr.	8140
	To Dividend Revenue A/c ($81400 * 10%)		8140
31 Dec 2017	Securities Fair value adjustment for sale A/c Dr.	193000
	To Unrealized Holding gain or loss - Equity share		193000
	(193000*($13-$12))

Situation 2 :-

Date	Particulars	Debit($)	Credit($)
1 Jan	Investment in Seles Corp. stock A/c Dr.	96960
	To Cash A/c ((30300*40%)*$8)		96960
15 Jan	Cash A/c Dr. ($38400*40%)	15360
	To Investment in Seles Corp. stock A/c		15360
31 Dec	Investment in Seles Corp. Stock A/c Dr.($90700*40%)	36280
	To Revenue from Investment A/c		36280