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Journal Entries for Fair Value and Equity Methods

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12. (Journal Entries for Fair Value and Equity Methods) Presented below are two
independent situations.

Situation 1
Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of Martinez Fashion at a total cost of $13 per share on March 18, 2003. On June 30, Martinez declared and paid a $75,000 cash dividend. On December 31, Martinez reported net income of $122,000 for the year. At December 31, the market price of Martinez Fashion was $15 per share. The securities are classified as available-for-sale.

Situation 2
Monica, Inc. obtained significant influence over Seles Corporation by buying 30% of
Seles's 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2003. On June 15, Seles declared and paid a cash dividend of $36,000. On December 31, Seles reported a net income of $85,000 for the year.

Instructions
Prepare all necessary journal entries in 2003 for both situations.

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Solution Summary

The solution has journal Entries for Fair Value and Equity Methods

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Situation 1: Journal entries by Conchita Cosmetics:

To record purchase of 200,000 shares of Martinez Fashion at a cost of $13 per share:
Mar 18 Available-for-Sale Securities Dr ...2,600,000
Cash Cr.....................................2,600,000
200,000 x 13= 2,600,000

To record the dividend revenue from Martinez Fashion:
Jun 30 Cash Dr.............................. 7,500
Dividend Income ...

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