1.
ACC 557 Week 8 Chapter 12 (E12 7 E12 8 E12 12 P12 2A)
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EXERCISE 12-7
(a) Jan. 1 Stock Investments 180,000
Cash 180,000

2.
Dec. 31 Cash ($60,000 X 25%) 15,000
Stock Investments 15,000
31 Stock Investments 50,000
Revenue from Stock Investments
($200,000 X 25%) 50,000
(b) Investment in Morelli, January 1 $180,000
Less: Dividend received 15,000
Plus: Share of reported income 50,000
Investment in Morelli, December 31 $215,000
Top of Form
Exercise 12-7
On January 1, Vince Corporation purchased a 25% equity in Morelli Corporation
for $180,000. At December 31, Morelli declared and paid a $60,000 cash dividend
and reported net income of $200,000.
(a)
Your answer is correct.
Journalize the transactions. (Credit account titles are automatically indented when
amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit

3.
Credit
Jan. 1
Dec. 31
(To record dividends received)
Dec. 31
(To record equity in Morelli Corporation’s net income)
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(b)
Your answer is correct.
Determine the amount to be reported as an investment in Morelli stock at
December 31.
Investment in Morelli December 31
$
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EXERCISE 12-8
1. 2014
Mar. 18 Stock Investments 390,000

4.
Cash (200,000 X 15% X $13) 390,000
June 30 Cash 9,000
Dividend Revenue
($60,000 X 15%) 9,000
Dec. 31 Fair Value Adjustment—Non-Trading 60,000
Unrealized Gain or Loss—Equity
($450,000 – $390,000) 60,000
2. Jan. 1 Stock Investments 81,000
Cash (30,000 X 30% X $9) 81,000
June 15 Cash 9,000
Stock Investments
($30,000 X 30%) 9,000
Dec. 31 Stock Investments 24,000
Revenue from Stock Investments
($80,000 X 30%) 24,000
Top of Form
Exercise 12-8
Your answer is correct.
Presented below are two independent situations.

5.
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, 2014. 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 non-trading.
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, 2014. 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.
Prepare all the necessary journal entries for 2014 for (a) Chicory Cosmetics and
(b) Frank, Inc. (Credit account titles are automatically indented when amount is
entered. Do not indent manually.)
No.
Date
Account Titles and Explanation
Debit
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