Prepare all the necessary journal entries for 2012 for (a) Chicory Cosmetics and
ID: 2379577 • Letter: P
Question
Prepare all the necessary journal entries for 2012 for (a) Chicory Cosmetics and (b) Frank, Inc. (If there is no transaction, enter No entry as the account and 0 for the amount.)
Date Account/Description Debit Credit (a) Mar. 18 June 30 Dec. 31 (b) Jan. 1 June 15 Dec. 31 Presented below are two independent situations. Chicory Cosmetics acquired 15% of the 191,700 shares of common stock of Racine Fashion at a total cost of $12 per share on March 18, 2012. On June 30, Racine declared and paid a $47,100 dividend. On December 31, Racine reported net income of $115,750 for the year. At December 31, the market price of Racine Fashion was $14 per share. The stock is classified as available-for- sale. Frank, Inc. obtained significant influence over Nowak Corporation by buying 30% of Nowak 38,900 outstanding shares of common stock at a total cost of $6 per share on January 1, 2012. On June 15, Nowak declared and paid a cash dividend of $25,390. On December 31, Nowak reported a net income of $86,820 for the year. Prepare all the necessary journal entries for 2012 for (a) Chicory Cosmetics and (b) Frank, Inc. (If there is no transaction, enter No entry as the account and 0 for the amount.)Explanation / Answer
(a) Heath Cosmetics < 20% of the common stock of Van Fashion, so the cost method is used.
Mar. 18
Dr stock investments $390,000 (15% x 200,000 shares x $13 per share)
Cr cash $390,000
June 30
Dr Cash $9,000 (15% x $60,000)
Cr dividend revenue $9,000
Dec. 31
Dr stock investments $60,000 (30,000 x $15 each minus cost of $390,000)
Cr market adjustment available for sale (within equity) $60,000
(b) Yoder, Inc., bought 30% of Parks, so the equity method is used.
Jan. 1
Dr stock investments $81,000 (9,000 shares x $9)
Cr Cash $81,000
June 15
Dr cash $9,000 (30% of $30,000)
Cr stock investments $9,000
Dec. 31
Dr stock investments $24,000 (30% of $80,000)
Cr revenue from investments in Parks Corp. $24,000