Question

Presented below are two independent situations.

1. Guo Cosmetics acquired 10% of the 200,000 shares of common stock of Chy Fashion at a total cost of $12 per share on March 18, 2017. On June 30, Chy declared and paid a $50,000 dividend. On December 31, Chy reported net income of $110,000 for the year. At December 31, the market price of Chy Fashion was $15 per share. The stock is classified as available-for-sale.

2. Liptin, Inc., obtained significant influence over Blurr Corporation by buying 25% of Blurr 50,000 outstanding shares of common stock at a total cost of $7 per share on January 1, 2017. On June 15, Blurr declared and paid a cash dividend of $40,000. On December 31, Blurr reported a net income of $90,000 for the year.

Instructions

Prepare all the necessary journal entries for 2014 for (a) Guo Cosmetics and (b) Liptin, Inc.

Answer 1

Journal entries:
a) Guo Cosmetics :
Date	Accounts Title	Debit $	Credit$	calculation
18-Mar-17	Available for sale-Chy	240000		(200000*10%*12)
	Cash		240000
	(20000 trading stock of Chy purchased)
30-Jun-17	Cash	5000		(50000*10%)
	Dividend revenue		5000
	(dividend received from Chy)
31-Dec-17	Available for sale-Chy	60000		20000* (15-12)
	Unrealised income		60000
	(the available for sale stock booked at market price)
b) Liptin, Inc. :
Date	Accounts Title	Debit $	Credit$
1-Jan-17	Investment in Blurr Corp.	87500		(50000*25%*7)
	Cash		87500
	(significant investment in Blurr of 25%)
15-Jun-17	Cash	10000		(40000*25%)
	Investment in Blurr Corp.		10000
	(dividend received from Blurr corp. on 25% investment stock)
31-Dec-17	Investment in Blurr Corp.	22500		(90000*25%)
	Net Income of Blurr Corp.		22500
	(equity income recorded of Blurr Corp. for the year)