Question

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $183,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2018, Milani purchased an additional 30 percent of Seida for $651,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $2,020,000 in total. Seida's January 1, 2018 book value equaled $1,870,000, although land was undervalued by $136,000. Any additional excess fair value over Seida's book value was attributable to a trademark with an 8-year remaining life. During 2018, Seida reported income of $315,000 and declared and paid dividends of $106,000. Prepare the 2018 journal entries for Milani related to its investment in Seida.

Answer 1

Ans- Milani Inc.-

Purchase price of 30% of Seida's stock	$651,000
Fair value of 10% investment in Seida ($2,020,000*10%)	202,000
Total FV of 40% investment in Seida	$853,000
Book Value of Seida stock ($1,870,000*40%)	-748,000
FV in excess of BV	105,000
Excess cost assigned to undervalued land ($136,000*40%)	-54,400
Trademark	50,600
Remaining life of trademark	8 Years
Annual Amortization	6,325

Journal Entries

Date	Account Title and Explanation	Debit ($)	Credit ($)
2018
Jan.1	Investment in Seida	651,000
	Cash		651,000
	(To record the investment in Seida)
2018	Investment in Seida	126,000
	Equity Income- Investment in Seida ($315,000*40%)		126,000
	(To record the income for the year)
2018	Equity Income- Investment in Seida	6,325
	Investment in Seida		6,325
	(To record the 2018 amortization)
2018	Dividend Receivable	42,400
	Investment in Seida ($106,000*40%)		42,400
2018	Cash	42,400
	Dividend Receivable		42,400
	(To record the receipt of dividend)

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