Question

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2020, for $196,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2021, Milani purchased an additional 30 percent of Seida for $647,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $2,050,000 in total. Seida’s January 1, 2021, book value equaled $1,900,000, although land was undervalued by $131,000. Any additional excess fair value over Seida's book value was attributable to a trademark with an eight-year remaining life. During 2021, Seida reported income of $342,000 and declared and paid dividends of $102,000.

- Record acquisition of Seida stock.

- Record the 40% income earned during period by Seida.

- Record 2021 amortization for trademark excess fair value.

- Record dividend declaration from Seida.

- Record collection of dividend from investee.

Answer 1

Answer:
Transaction	Accounts Titles and Explanation	Debit (in $ )	Credit (in $ )
1	Investment in Seida	$ 647,000
	Cash		$ 647,000
	(To record the investment )
2	Investment in Seida ( $ 342,000 x 40%)	$ 136,800
	Equity Income - Investment in Seida		$ 136,800
	(To record the income Earned)
3	Equity Income - Investment in Seida	$ 4,950
	Investment in Seida		$ 4,950
	(To record amortization of Trademark)
4	Dividend Receivable	$ 40,800
	Investment in Seida                            ($ 102,000x 40%)		$ 40,800
	(To record Dividend declared)
5	Cash	$ 40,800
	Dividend Receivable		$ 40,800
	(To record the Payment of dividend)

Particulars	Amount (in $)
Purchase price of Stock - 30%	$ 647,000
Add: Fair value of Original investment - 10%                 ($ 2,050,000 * 10%)	$205,000
Total Fair value - 40%	$ 852,000
Less: Book value of stock                   (1,900,000 x 40%)	($760,000)
Excess of Fair value over book value	$ 92,000
Excess cost assigned ( $ 131,000*40%)	($ 52,400)
Trademark	$ 39,600
Balance life of Trademark	8 Years
Annual Amortization	$ 4,950