Presented below are two independent situations. Gambino Cosmetics acquired 10% of the 200,000 shares of common stock of Nevins Fashion at a total cost of $13 per share on March 18, 2015. On June 30, Nevins declared and paid a $60,000 dividend. On December 31, Nevins reported net income of $122,000 for the year. At December 31, the market price of Nevins Fashion was $15 per share. The stock is classiﬁed as available-for-sale. Kanza, Inc., obtained signiﬁcant inﬂuence over Rogan Corporation by buying 40% of Rogan's 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2015. On June 15, Rogan declared and paid a cash dividend of $30,000. On December 31, Rogan reported a net income of $80,000 for the year. InstructionsPrepare all the necessary journal entries for 2015 for (a) Gambino Cosmetics and (b) Kanza, Inc.

Question

Business

Justice Matthews

8 September, 18:45

Presented below are two independent situations. Gambino Cosmetics acquired 10% of the 200,000 shares of common stock of Nevins Fashion at a total cost of $13 per share on March 18, 2015. On June 30, Nevins declared and paid a $60,000 dividend. On December 31, Nevins reported net income of $122,000 for the year. At December 31, the market price of Nevins Fashion was $15 per share. The stock is classiﬁed as available-for-sale. Kanza, Inc., obtained signiﬁcant inﬂuence over Rogan Corporation by buying 40% of Rogan's 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2015. On June 15, Rogan declared and paid a cash dividend of $30,000. On December 31, Rogan reported a net income of $80,000 for the year. InstructionsPrepare all the necessary journal entries for 2015 for (a) Gambino Cosmetics and (b) Kanza, Inc.

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Marin Rich · Answer 1

See the explanation below

Explanation:

(a) Gambino Cosmetics

Since Gambino Cosmetics just 15% which is less than 20% of Nevins Fashion, the cost method for accounting for investments is the relevant method that is used as follows:

Stock investment = 10% * 200,000 * $13 = $260,000

Dividend income = 10% * $60,000 = $6,000

Available-for-sale (AFS) reserve = 10% * $122,000 = $12,000

Date Details Dr ($) Cr ($)

08 Mar. '15 Stock investments 260,000

Cash 260,000

To record investment in Nevins Fashion

30 Jun. '15 Cash 6,000

Dividend income 6,000

To record dividend income from investment in Nevins Fashion

31 Dec. '15 Stock investments 12,000

AFS Reserve 12,000

To record share of income in Nevins Fashion

(b) Kanza, Inc.,

Since Kanza, Inc. acquired 40% in Rogan Corporation which is greater than 20%, the equity method for accounting for investments is the relevant method that is used as follows:

Stock investment = 40% * 30,000 * $9 = $108,000

Dividend income = 40% * $30,000 = $12,000

Investment revenue = 40% * $80,000 = $32,000

Date Details Dr ($) Cr ($)

01 Jan. '15 Stock investments 108,000

Cash 108,000

To record investment in Rogan Corporation

15 Jun. '15 Cash 12,000

Stock investment 12,000

To record dividend received from investment in Rogan Corporation

31 Dec. '15 Stock investments 32,000

Investment revenue 32,000

To record share of income in Rogan Corporation