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The following are two independent situations. Situation 1 Whoo Cosmetics acquired 12% of the 200,000 shares of common...

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Accounting

The following are two independent situations.

Situation 1

Whoo Cosmetics acquired 12% of the200,000 shares of common stock of Loreal Fashion at a total cost of$15 per share on Oct. 18, 2018. On Oct. 30, Loreal declared andpaid $60,000 cash dividend to all stockholders. On December 31,Loreal reported net income of $122,000 for the year. At December31, the market price of Loreal Fashion was $12 per share.

Situation 2

Peach Republic Group obtainedsignificant influence over Old Army Corporation by buying 35% ofOld Army’s 40,000 outstanding shares of common stock at a totalcost of $16 per share on January 1, 2018. On June 15, Old Armydeclared and paid cash dividends of $58,000. On December 31, OldArmy reported a net income of $100,000 for the year.

Prepare all the necessary journalentries in 2018 for Whoo Cosmetics and Peach Republic Group.

Answer & Explanation Solved by verified expert
4.4 Ratings (590 Votes)

1) Journal entries
Date Particulars Debit Credit
18-Oct available for sale securities(200000*12%)*15 $ 3,60,000.00
cash $ 3,60,000.00
(to record investment )
30-Oct Cash (60000*12%) $       7,200.00
Dividend revenue $       7,200.00
(to record dividend received )
31-Dec Securities fair value adjustment12000*(15-12) $     36,000.00
unrealised holding gain /loss $     36,000.00
(to record difference )
2) situation
Date Particulars Debit Credit
01-01-2018 investment in old army stock $ 2,24,000.00
cash (40000*16)*35% $ 2,24,000.00
(to record share purchased )
15-Jun Cash (58000*35%) $     20,300.00
investment in old army stock $     20,300.00
(to record dividend received)
31-Dec investment in old army stock (100000*35%) $     35,000.00
Revenue $     35,000.00
(to record revenue)

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