Presented below are two independent situations.
Prepare all the necessary journal entries for 2012 for (1) Chicory Cosmetics and (2) Frank, Inc.
Explanation
| 1. | Chicory Cosmetics acquired 15% of the 297,300 shares of common stock of Racine Fashion at a total cost of $14 per share on March 18, 2012. On June 30, Racine declared and paid a $73,900 dividend. On December 31, Racine reported net income of $124,360 for the year. At December 31, the market price of Racine Fashion was $16 per share. The stock is classified as available-for-sale. | |
| 2. | Frank, Inc., obtained significant influence over Nowak Corporation by buying 30% of Nowak’s 33,600 outstanding shares of common stock at a total cost of $7 per share on January 1, 2012. On June 15, Nowak declared and paid a cash dividend of $28,800. On December 31, Nowak reported a net income of $82,000 for the year. |
Prepare all the necessary journal entries for 2012 for (1) Chicory Cosmetics and (2) Frank, Inc.
Explanation
| 1. | Mar. 18 | Cash | = | (297,300 x 15% x $14) | = | $624,330 | ||
| June 30 | Dividend Revenue | = | ($73,900 x 15%) | = | $11,085 | |||
| Dec. 31 | Unrealized Gain or Loss—Equity | = | ($713,520 – $624,330) | = | $89,190 | |||
| 2. | Jan. 1 | Cash | = | (33,600 x 30% x $7) | = | $70,560 | ||
| June 15 | Stock Investments | = | ($28,800 x 30%) | = | $8,640 | |||
| Dec. 31 | Revenue from Stock Investments | = | ($82,000 x 30%) | = | $24,600 |
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