ACC 423 Wiley

Presented below are two independent situations.

Situation 1
Hatcher Cosmetics acquired 10% of the 215,000 shares of common stock of Ramirez Fashion at a total cost of $16 per share on March 18, 2012. On June 30, Ramirez declared and paid a $77,400 cash dividend. On December 31, Ramirez reported net income of $130,400 for the year. At December 31, the market price of Ramirez Fashion was $18 per share. The securities are classified as available-for-sale.

Situation 2
Holmes, Inc. obtained significant influence over Nadal Corporation by buying 27% of Nadal’s 31,300 outstanding shares of common stock at a total cost of $10 per share on January 1, 2012. On June 15, Nadal declared and paid a cash dividend of $36,300. On December 31, Nadal reported a net income of $89,600 for the year.

Prepare all necessary journal entries in 2012 for both situations. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Cardinal Paz Corp. carries an account in its general ledger called Investments, which contained debits for investment purchases, and no credits, with the following descriptions.

(a) Prepare entries necessary to classify the amounts into proper accounts, assuming that all the securities are classified as available-for-sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(b) Prepare the entry to record the accrued interest and the amortization of premium on December 31, 2012, using the straight-line method. (Round answers to 0 decimal places, e.g. $2,500. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(c) The fair values of the investments on December 31, 2012, were:

What entry or entries, if any, would you recommend be made? (Round answers to 0 decimal places, e.g. $2,500. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(d) The U.S. government bonds were sold on July 1, 2013, for $120,650 plus accrued interest. Give the proper entry. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)