Salinas Corporation acquired 20% of the outstanding common stock of Pebble Beach Corporation on December 31,...

Salinas Corporation acquired 20% of the outstanding common stock of Pebble Beach Corporation on December 31, 2020. The purchase price was $4,200,000 for 100,000 shares. Pebble Beach Corporation declared and paid a $.95 (cents) per share cash dividend on June 30 and on December 31, 2021. Pebble Beach reported net income of $1,720,000 for 2021. The fair market value of Pebble Beach Corporation’s stock was $30 per share at December 31, 2021.

Journal entries need be prepared for Salinas Corporation for 2020 and 2021, assuming Phelps is not able to exercise significant influence over Pebble Beach Corporation.
Journal entries need be prepared for Salinas Corporation for Salinas Corporation for 2020 and 2021, assuming that Salinas Corporation is able to exercise influence over Pebble Beach Corporation.

Expert Solution

a. Not able to exercise significant influence

Date	General Journal	Debit	Credit
Dec. 31, 2020	Equity Investment in Pebble Beach	4200000
	Cash		4200000
	(To record the purchase of investment)
June 30, 2021	Cash (100000 x $0.95)	95000
	Dividend revenue		95000
	(To record dividends received)
Dec. 31, 2021	Cash (100000 x $0.95)	95000
	Dividend revenue		95000
	(To record dividends received)
Dec. 31, 2021	Unrealized holding gain or loss	1200000
	Fair value adjustment [$4200000 - (100000 x $30)]		1200000
	(To record the investment at fair value)

b. Able to exercise significant influence

Date	General Journal	Debit	Credit
Dec. 31, 2020	Equity Investment in Pebble Beach	4200000
	Cash		4200000
	(To record the purchase of investment)
June 30, 2021	Cash (100000 x $0.95)	95000
	Equity Investment in Pebble Beach		95000
	(To record dividends received)
Dec. 31, 2021	Cash (100000 x $0.95)	95000
	Equity Investment in Pebble Beach		95000
	(To record dividends received)
Dec. 31, 2021	Equity Investment in Pebble Beach	344000
	Investment revenue (20% x $1720000)		344000
	(To record share in net income)

ekkarill92 answered 1 year ago

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