Question

The following are two independent situations.

Situation 1
Carla Cosmetics acquired 10% of the 210,000 shares of common stock of Martinez Fashion at a total cost of $13 per share on March 18, 2020. On June 30, Martinez declared and paid $75,800 cash dividend to all stockholders. On December 31, Martinez reported net income of $129,200 for the year. At December 31, the market price of Martinez Fashion was $14 per share.

Situation 2
Sarasota, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles’s 28,400 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 $33,900 to all stockholders. On December 31, Seles reported a net income of $81,900 for the year.

Prepare all necessary journal entries in 2020 for both situations.

Date Credit Account Titles and Explanation Debit Situation 1: Carla Cosmetics Situation 2: Sarasota, Inc

Answer 1

Situation 1: Carla Cosmetics:

Date	Account Titles & Explanations	Debit	Credit
March 18, 2020	Available-for-Sale Securities (210000 * $13 * 10%)	$273000
	Cash		$273000
June 30, 2020	Cash ($75800 * 10%)	$7580
	Dividend Revenue		$7580
Dec 31, 2020	Securities Fair Value Adjustment(Available-for-Sale) ($14 - $13) * 21000 shares	$21000
	Unrealized Holding Gain or Loss—Equity		$21000

Situation 2: Sarasota, Inc:

Date	Account Titles & Explanations	Debit	Credit
Jan 1, 2020	Investment in Seles Corp. Stock (28400 * 30% * $9)	$76680
	Cash		$76680
June 15, 2020	Cash ($33900 * 30%)	$10170
	Investment in Seles Corp. Stock		$10170
Dec 31, 2020	Investment in Seles Corp. Stock ($81900 * 30%)	$24570
	Revenue from Investment		$24570