Presented below are two independent situations.
1. Chicory Cosmetics acquired 15% of the 200,000 shares of common stock of Racine Fashion at a total cost of $13 per share on March 18, 2012. On June 30, Racine declared and paid a $60,000 dividend. On December 31, Racine reported net income of $122,000 for the year. At December 31, the market price of Racine Fashion was $15 per share. The stock is classified as available for sale.
2. Frank, Inc., obtained significant influence over Nowak Corporation by buying 30% of Nowak’s 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2012. On June 15, Nowak declared and paid a cash dividend of $30,000. On December 31, Nowak reported a net income of $80,000 for the year.
Instructions
Prepare all the necessary journal entries for 2012 for (1) Chicory Cosmetics and (2) Frank, Inc.