Journal Entries for Fair Value and Equity Methods
Presented below are two independent situations.
Situation 1
Hatcher Cosmetics acquired 10% of the 221,000 shares of common stock of Ramirez Fashion at a total cost of $15 per share on March 18, 2012. On June 30, Ramirez declared and paid a $77,800 cash dividend. On December 31, Ramirez reported net income of $127,900 for the year. At December 31, the market price of Ramirez Fashion was $16 per share. The securities are classified as available-for-sale.
Situation 2
Holmes, Inc. obtained significant influence over Nadal Corporation by buying 25% of Nadal's 34,000 outstanding shares of common stock at a total cost of $11 per share on January 1, 2012. On June 15, Nadal declared and paid a cash dividend of $37,000. On December 31, Nadal reported a net income of $93,500 for the year
Instruction:
Prepare all necessary journal entries in 2012 for each situation.