Lisa Company had outstanding 100,000 shares of common stock. On January 10, 2013, Marg Company purchased a

Question:

Lisa Company had outstanding 100,000 shares of common stock. On January 10, 2013, 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 2013, Lisa reported net income of $300,000 and cash dividends of $0.60 per share. At December 31, 2013, 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:
Case A: 10,000 Shares Purchased Case B: 40,000 Shares Purchased
1. Accounting method?
2. Journal entries made by Marg Company:
a. To record the acquisition of Lisa Company on January 10, 2013.
b. To recognize the income reported by LisaC ompany for 2013.
c. To recognize the dividends declared and paid by Lisa Company.
d. Entry to recognize the fair value adjustment at end of 2013.
3. Complete the following schedule to show the separate amounts that should be reported on the 2013 of Marg Company:
Dollar Amounts
Case A Case B
Balance sheet
Investments
Stockholders' Equity
Income statement
Dividend Revenue
Equity in Affiliate Earnings
4. Explain why the assets, stockholders' equity, and income statements for the two cases differ?
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...