Question

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2020, for $187,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2021, Milani purchased an additional 30 percent of Seida for $653,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $2,100,000 in total. Seida’s January 1, 2021, book value equaled $1,950,000, although land was undervalued by $135,000. 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 $267,000 and declared and paid dividends of $120,000.

Prepare the 2021 journal entries for Milani related to its investment in Seida. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• 1

  Record acquisition of Seida stock.

• 2

  Record the 40% income earned during period by Seida.

• 3

  Record 2021 amortization for trademark excess fair value.

• 4

  Record dividend declaration from Seida.

• 5

  Record collection of dividend from investee.

Answer 1

S.No.	Account Titles	Debit $	Credit $
1	Investment in Seida Stock -Equity Method	653,000
	Cash		653,000
2	Investment in Seida Stock -Equity Method	106,800
	Investment Revenue (267,000 x 40% )		106,800
3	Investment Revenue	1,375
	Investment in Seida Stock -Equity Method		1,375
	(27,500 / 8 ) x 40%
4	Dividend Receivable	48,000
	Investment in Seida Stock -Equity Method		48,000
	(120,000 x 40% )
5	Cash	48,000
	Dividend Receivable		48,000

Working
	Amount $
Purchase consideration for 30%	653,000
Less: Net Assets acquired	625,500
(1,950,000 + 135,000 ) x 30%
Amount attributable to Trademark	27,500