Question

The following are two independent situations.

Situation 1

Whoo Cosmetics acquired 12% of the 200,000 shares of common stock of Loreal Fashion at a total cost of $15 per share on Oct. 18, 2018. On Oct. 30, Loreal declared and paid $60,000 cash dividend to all stockholders. On December 31, Loreal reported net income of $122,000 for the year. At December 31, the market price of Loreal Fashion was $12 per share.

Situation 2

Peach Republic Group obtained significant influence over Old Army Corporation by buying 35% of Old Army’s 40,000 outstanding shares of common stock at a total cost of $16 per share on January 1, 2018. On June 15, Old Army declared and paid cash dividends of $58,000. On December 31, Old Army reported a net income of $100,000 for the year.

Prepare all the necessary journal entries in 2018 for Whoo Cosmetics and Peach Republic Group.

Answer 1

1) Journal entries
Date	Particulars			Debit	Credit
18-Oct	available for sale securities(200000*12%)*15			$ 3,60,000.00
	cash				$ 3,60,000.00
	(to record investment )
30-Oct	Cash (60000*12%)			$       7,200.00
	Dividend revenue				$       7,200.00
	(to record dividend received )
31-Dec	Securities fair value adjustment12000*(15-12)			$     36,000.00
	unrealised holding gain /loss				$     36,000.00
	(to record difference )
2) situation
Date	Particulars			Debit	Credit
01-01-2018	investment in old army stock			$ 2,24,000.00
	cash (40000*16)*35%				$ 2,24,000.00
	(to record share purchased )
15-Jun	Cash (58000*35%)			$     20,300.00
	investment in old army stock				$     20,300.00
	(to record dividend received)
31-Dec	investment in old army stock (100000*35%)			$     35,000.00
	Revenue				$     35,000.00
	(to record revenue)