Question

The following are two independent situations.

Situation 1

Novak Cosmetics acquired 10% of the 198,000 shares of common stock of Martinez Fashion at a total cost of $12 per share on March 18, 2017. On June 30, Martinez declared and paid $82,000 cash dividend to all stockholders. On December 31, Martinez reported net income of $119,400 for the year. At December 31, the market price of Martinez Fashion was $13 per share.

Situation 2

Splish, Inc. obtained significant influence over Seles Corporation by buying 40% of Seles’s 28,200 outstanding shares of common stock at a total cost of $10 per share on January 1, 2017. On June 15, Seles declared and paid cash dividends of $36,300. On December 31, Seles reported a net income of $87,100 for the year.

Prepare all necessary journal entries in 2017 for both situations.

Answer 1

Journal entries

Situation 1(books of Novak cosmetics)

Date	Particulars	L.F	Debit	Credit
18 March	Martinez Fashion (Shares)A/c- Dr               To Bank (being 19,800 shares of common stock of Martinez Fashion purchased)		237,600	237,600
30 June	Bank A/c             - Dr    To Dividend account (Being cash dividend on Martinez fashion shares received)		8,200	8,200
31 December	Martinez Fashion (shares) A/c -Dr            To OCI a/c (being investments valued at fair value at year end)		19,800	19,800

Situation -2 (books of Splish Inc)

Date	Particulars	L.F	Debit	Credit
1 Jan	Seles corporation A/c -Dr          To Bank account (Being 40% of total outstanding Seles shares [11280] acquired at $10 per share)		112,800	112,800
15 June	Bank A/c             - Dr    To Dividend account (Being cash dividend on Seles corporation shares received)		14,520	14,520
31 December	Profit share of Seles corporation A/c-Dr                  To Seles Corporation account (Profit share[40%] of Seles corporation recognized in books)		34,840	34,840