Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2020, for $186,000 and appropriately...

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2020, for $186,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2021, Milani purchased an additional 30 percent of Seida for $615,000 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 $134,000. 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 $319,000 and declared and paid dividends of $116,000.

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

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.

Solutions

Expert Solution

Transaction	General Journal	Debit($)	credit($)
1	Investment in seida	615,000
	Cash		615,000
	(To record acquision of sierda stock)

2	Investment in sierda	127,600
	Equity income -investment in sierda($ 319,000*40%)		127,600
	(To record income for sierda)

3	Equity income -investment in sierda	800
	Investment in sierda		800
	(To record amortization)

4	dividends receivable	46,400
	Investment in sierda($116,000*40%)		46,400
	(To record dividends declaration from sierda)

5	cash	46,400
	Dividend receivable		46,400
	(To record collection of investee)

working:

purchase rice of 30%of sierda's stock. = $615,000

FV of original 10%investment in sierda

($2,050,000*10%) = $205,000

Total fairvalue of 40% investment in seida. = $820,000

Book value of seirda's stock(19,00,000*40%) = ($760,000)

Fair value in excess of book value. = $ 60,000

Excess cost assigned to undervalued land. = ($53,600)

(134,000*40%)

Trademark. = $6,400

Remaining life of trade mark. = 8 years

Annual amortization. = $800

ekkarill92 answered 1 year ago

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