Question

The following are two independent situations.

Situation 1
Marin Cosmetics acquired 10% of the 212,000 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 $76,400 cash dividend to all stockholders. On December 31, Martinez reported net income of $125,800 for the year. At December 31, the market price of Martinez Fashion was $14 per share.

Situation 2
Headland, Inc. obtained significant influence over Seles Corporation by buying 40% of Seles’s 31,700 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 $33,100. On December 31, Seles reported a net income of $77,900 for the year.

Prepare all necessary journal entries in 2017 for both situations.(3 entries for each)

Answer 1

Situation -1
Date	Accounts Titles and Explanation	Debit	Credit
March 18, 2017	Available-for-Sale Securities	$275,600
	Cash		$275,600
June 30, 2017	Cash	$7,640
	Dividend Revenue ($76,400 x 10%)		$7,640
Dec 31, 2017	Securities Fair Value Adjustment (Available for-Sale)	$21,200
	Unrealized Holding Gain or Loss—Equity		$21,200
	($14 - $13) X 21,200 shares = $21,200
Situation -2
Date	Accounts Titles and Explanation	Debit	Credit
January 1, 2017	Investment in Seles Corp Stock	$114,120
	Cash [(31,700 X 40%) X $9]		$114,120
June 15, 2017	Cash ($33,100 X 40%)	$13,240
	Investment in Seles Corp. Stock		$13,240
Dec 31, 2017	Investment in Seles Corp. Stock             (40% X $77,900)	$31,160
	Revenue from Investment		$31,160