Question

Situation 1 Riverbed Cosmetics acquired 10% of the 215,000 shares of common stock of Martinez Fashion at a total cost of $12 per share on March 18, 2020. On June 30, Martinez declared and paid $74,000 cash dividend to all stockholders. On December 31, Martinez reported net income of $127,600 for the year. At December 31, the market price of Martinez Fashion was $13 per share.
Situation 2 Marin, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles's 31,300 outstanding shares of common stock at a total cost of $9 per share on January 1, 2020. On June 15, Seles declared and paid cash dividends of $36,600 to all stockholders. On December 31, Seles reported a net income of $80,100 for the year.
Prepare all necessary journal entries in 2020 for both situations. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts.)

Answer 1

Answer:

Riverbed Cosmetics and Martinez Fashion

March 18, 2020:

Debit Investment in Martinez Fashion $2,580,000

Credit Cash $2,580,000

To record the acquisition of 10% of the 215,000 shares of common stock

June 30, 2020:

Debit Cash $7,400

Credit Dividend Income $7,400

To record dividend income received ($74,000 * 10%).

December 31, 2020:

Debit Investment in Martinez Fashion $215,000

Credit Unrealized Gain $215,000

To record the unrealized gain from the increase in share price.

Situation 2:

Marin, Inc. and Seles Corporation

January 1, 2020:

Debit Investment in Seles Corporation $84,510

Credit Cash $84,510

To record the 30% of Seles's 31,300 shares acquired at a total cost of $9 per share.

June 15, 2020:

Debit Cash $10,980

Credit Investment in Seles Corporation $10,980

To record the 30% of $36,600 dividends paid to all stockholders.

December 31, 2020:

Debit Investment in Seles Corporation $24,030

Credit Retained Earnings $24,030

To record the company's share of the net income.

Step-by-step explanation:

a) Data and Analysis:

Riverbed Cosmetics and Martinez Fashion

March 18, 2020: Investment in Martinez Fashion $2,580,000 Cash $2,580,000 10% of the 215,000 shares of common stock

June 30, 2020: Cash $7,400 Dividend Income $7,400 ($74,000 * 10%)

December 31, 2020: Investment in Martinez Fashion $215,000 Unrealized Gain $215,000

Situation 2:

Marin, Inc. and Seles Corporation

January 1, 2020: Investment in Seles Corporation $84,510 Cash $84,510

30% of Seles's 31,300 outstanding shares of common stock at a total cost of $9 per share

June 15, 2020: Cash $10,980 Investment in Seles Corporation $10,980

30% of $36,600 paid to all stockholders.

December 31, 2020: Investment in Seles Corporation $24,030 Retained Earnings $24,030