E17-12 - a net income of $85,000 for the year Instructions...

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E17-12 (LO 3 , 4 ) (Journal Entries for Fair Value and Equity Methods) Presented on page 890 are two independent situations. Situation 1 Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of Martinez Fashion at a total cost of $13 per share on March 18, 2007. On June 30, Martinez declared and paid a $75,000 cash dividend. On December 31, Martinez reported net income of $122,000 for the year. At December 31, the market price of Martinez Fashion was $15 per share. The securities are classified as available-for- sale. Situation 2 Monica, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles's 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2007. On June 15, Seles declared and paid a cash dividend of $36,000. On December 31, Seles reported
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Unformatted text preview: a net income of $85,000 for the year. Instructions Prepare all necessary journal entries in 2007 for both situations. SOLUTIONS Situation 1: Journal entries by Conchita Cosmetics: 18-Mar-07 Available-for-Sale Securities 260,000 Cash 260,000 30-Jun-07 Cash 7,500 Dividend Revenue ($75,000 X 10%) 7,500 31-Dec-07 Securities Fair Value Adjustment (Available-for-Sale) 40,000 Unrealized Holding Gain or Loss--Equtiy 40,000 ($15 – $13) X 20,000 shares = $40,000 Situation 2: Journal entries by Monica, Inc. 1-Jan-07 Investment in Seles Corp. Stock 81,000 Cash [(30,000 X 30%) X $9] 81,000 15-Jun-07 Cash ($36,000 X 30%) 10,800 Investment in Seles Corp. Stock 10,800 Investment in Seles Corp. Stock 25,500 (30% X $85,000) Revenue from Investment 25,500...
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