Question

15-3

Prepare all the necessary journal entries for (a) Ritter Cosmetics and (b) Somer, Inc.

a) Ritter Cosmetics acquired 10% of the 200,000 shares of common stock of Mai Fashion at a total cost of $13 per share on March 18, 2018. On June 30, Mai declared and paid a $70,000 dividend. On December 31, Mai reported net income of $122,000 for the year. At Dec. 31, the market price of Mai Fashion was $15 per share. The stock is classified as available-for-sale.

b) Somer, Inc. obtained significant influence over Ortiz Corporation by Buying 40% of Ortiz’s

30,000 outstanding shares of common stock at a total cost of $9 per share on Jan. 1, 2018.

On June 15, Ortiz declared and paid a cash dividend of $35,000. On Dec. 31, Ortiz reported a

net income of $80,000 for the year.

Answer 1

A)

Ritter has acquired 10% Investment, so this Investment needs to be carried in books at fair value method as follows:

B)

Somer inc has acquired significant influence (40%) so it will be shown in books as per Equity method as follows:

Please comment if any query.