Lisa Company had outstanding 100,000 shares of common stock. On January 10, 2015, Marg Company purchased a block of these shares in the open market at $ 20 per share, with the intent of holding the shares for a long time. At the end of 2015, Lisa reported net income of $ 300,000 and cash dividends of $ 0.60 per share. At December 31, 2015, Lisa Company stock was selling at $ 18 per share.
Required:
1. This problem involves two separate cases. For each case (shown in the table), identify the method of accounting that Marg Company should use. Explain why.
2. Give the journal entries for Marg Company at the dates indicated for each of the two independent cases. If no entry is required, explain why. Use the following format:
3. Complete the following schedule to show the separate amounts that should be reported on the 2015 financial statements of Marg Company:
4. Explain why the assets, stockholders equity, and income statements for the two cases differ.