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Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $187,000 and appropriately...

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $187,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2018, Milani purchased an additional 30 percent of Seida for $626,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $1,980,000 in total. Seida's January 1, 2018 book value equaled $1,830,000, although land was undervalued by $130,000. 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 $282,000 and declared and paid dividends of $101,000. 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.)

1.

Record acquisition of Seida stock.

2

Record income for the year: 40% of the $282,000 reported income.

3

Record 2018 amortization for trademark excess fair value.

4

Record dividend declaration from Seida.

5

The record collection of dividend from investee.

Solutions

Expert Solution

1 Investment in Seida $626,000
To Cash $626,000
(Being purchase of additional investment in Seida)
2 Investment in Seida $112,800
To Equity Income - Investment in Seida $112,800
(Being share in the income of Seida) - 282000*40%
3 Equity Income - Investment in Seida $3,625
To Investment in Seida $3,625
(Being amortization of patents)
4 Dividends receivable $40,400
To Investment in Seida $40,400
(Being dividends declared and receivable) - $101000*40%
5 Cash $40,400
To dividends receivable $40,400
(Being dividend received)
Purchase Price 626000
Fair value of original 10% 187000
Total fair value 813000
Book value of Seida(1980000*40%) 732000
Fair Value in excess 81000
Excess cost assigned to undervalued land(130000*40%) 52000
Trademark 29000
Remaining life of trademark 8
Annual amortization 3625

ekkarill92 answered 2 years ago
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