Question

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $184,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2018, Milani purchased an additional 30 percent of Seida for $645,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $1,990,000 in total. Seida's January 1, 2018 book value equaled $1,840,000, although land was undervalued by $139,000. 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 $275,000 and declared and paid dividends of $109,000. Prepare the 2018 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.)

Answer 1

Journal Entries

Date	Account	Debit($)	credit($)
Jan1,2018	Investment in seida	6,45,000
	cash		6,45,000
	( To record additional investment made)
31-Dec-18	Investment in seida(275,000*40%)	1,10,000
	Equity income -investment in seida		1,10,000
	(To record share of net income recorded)
31-Dec-18	cash	43,600
	Investment in seida(109,000*40%)		43,600
	( To record dividend received )
31-Dec-18	Equity income -Investment in seida (Note1)	6,550
	Investment in seida		6,550
	( To record annual amortisation of trademark )

Note:1
Purchase cost of new investment	6,45,000
fair value of 10% investment [19,90,000*.10]	1,99,000
Total fair value of investment	8,44,000
less:book value of investment [18,40,000*40%]	-7,36,000
excess of fair value over book value	1,08,000
value assigned to undervalued land (139,000*.40)	-55,600
Trademark	52,400
Amortisation : 52,400/8 = $6,550