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natta225 [31]
3 years ago
12

Bonita Cosmetics acquired 10% of the 218,000 shares of common stock of Martinez Fashion at a total cost of $13 per share on Marc

h 18, 2017. On June 30, Martinez declared and paid $71,300 cash dividend to all stockholders. On December 31, Martinez reported net income of $118,000 for the year. At December 31, the market price of Martinez Fashion was $14 per share. Situation 2 Windsor, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles’s 32,300 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 $35,200. On December 31, Seles reported a net income of $82,000 for the year.
Business
1 answer:
Semmy [17]3 years ago
5 0

Answer:

See explanation section

Explanation:

Req. A: Situation 1

Mar 18   Available for sale of stocks of MF  Debit   $283,400

                                                Cash               Credit             $283,400

Note: <em>As Bonita acquired 10% of Martinez shares at $13, total cash has to be paid to Martinez Fashion = (218,000*10%) × $13 = 21,800 shares × $13 = $283,400.</em>

Jun 30       Cash                                             Debit   $7,130

                                    Dividend Revenue    Credit                $7,130

Note: <em>As Martinez declared $71,300 to all stockholders, Bonita will receive 10% of those dividends as they acquired 10% of the total stocks. The cash received from the MF is = $71,300 × 10% = $7,130.</em>

Securities Fair Value

Dec 31        Adjustment                      Debit     $21,800

                        Unrealized holding gain (loss)- Equity    Credit     $21,800

Note: <em>As the market price of the share increased to $14-$13 = $1, Bonita would gain from the increased market price. Total gain = $1 × (218,000 shares × 10%) = $21,800.</em>

Req. B Situation 2

Investment in Seles

Jan 1          Common stock of Seles Corp.     Debit      $77,520

                                       Cash                         Credit             $77,520

Note: <em>As Windsor, Inc. obtained 30% of Martinez shares at $8, total cash has to be paid to Martinez Fashion = (32,300*30%) × $8 = 9,690 shares × $8 = $77,520.</em>

Jun 15        Cash                                           Debit         $10,560

                            Dividend Revenue          Credit             $10,560

Note: <em>As Seles declared $32,300 to all stockholders, Windsor, Inc. will receive 30% of those dividends as they acquired 30% of the total stocks. The cash received from the MF is = $32,300 × 30% = $10,560.</em>

                  Investment in Seles

Dec 31        Cash                   Debit          $24,600

                                    Revenue     Credit                       $24,600

Note: <em>As Seles reported a net income of $82,000, due to acquiring 30% of Seles stock, Windsor, Inc. will receive 30% of its net income. The revenue is = $82,000 × 30% = $24,600.</em>

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