Question

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2020, for $188,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2021, Milani purchased an additional 30 percent of Seida for $639,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $1,950,000 in total. Seida’s January 1, 2021, book value equaled $1,800,000, although land was undervalued by $132,000. 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 $314,000 and declared and paid dividends of $106,000.

Prepare the 2021 journal entries for Milani related to its investment in Seida.

Answer 1

	Year 2021
	Account Titles	Debit $	Credit $
	Investment in Seida Corporation	639,000
	Cash		639,000
	( To record investment )
	Investment in Seida Corporation	125,600
	Investment Revenue ( 314,000 x 40% )		125,600
	( To record share of net income )
	Cash ( 106,000 x 40% )	42,400
	Investment in Seida Corporation		42,400
	( To record dividend share)
	Investment Revenue	7,650
	Investment in Seida Corporation		7,650
	( To record trademark annual amortization )

	Working:
		Amount in $
	Purchase value of 30%	639,000
	Add :Fair value of 10%	195,000	(1,950,000 x 10% )
	Fair value of 40%	834,000
	Less :Book value of 40%	720,000	(1,800,000 x 40% )
	Fair value in excess of book value	114,000
	Less: assigned to land	52,800	( 132,000 x 40% )
	Remaining for trademark	61,200
	Annual amortization of trademark	$ 7,650	(61,200 / 8 )