Presented below are two independent situations. 1. Guo Cosmetics acquired 10% of the 200,000 shares of common stock of Chy Fashion at a total cost of $12 per share on March 18, 2020. On June 30, Chy declared and paid a $50,000 dividend. On December 31, Chy reported net income of $110,000 for the year. At December 31, the market price of Chy Fashion was $15 per share. The stock is classified as available-for-sale. 2. Liptin, Inc., obtained significant influence over Blurr Corporation by buying 25% of Blurr 50,000 outstanding shares of common stock at a total cost of $7 per share on January 1, 2020. On June 15, Blurr declared and paid a cash dividend of $40,000. On December 31, Blurr reported a net income of $90,000 for the year. Prepare all the necessary journal entries for 2020 for (a) Guo Cosmetics and (b) Liptin, Inc. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

(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          

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