Question

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $195,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2018, Milani purchased an additional 30 percent of Seida for $610,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $2,000,000 in total. Seida's January 1, 2018 book value equaled $1,850,000, 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 $332,000 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.)

Record acquisition of Seida stock.

Record income for the year: 40% of the $332,000 reported income.

Record 2018 amortization for trademark excess fair value.

Record dividend declaration from Seida.

Record collection of dividend from investee.

Answer 1

Particulars	amount
purchase price of 30% of seida stock	610000
fair value of original 10% investment is seida	2000000
total fair value of 40% investment in seida	2610000
book value of seida stock (1850000x40%)	-740000
Fair value in excess of book value	1870000
excess cost assigned to undervalued land	52000
(130000*40%)
remaining life of trade mark	8 years
annual amortization	6500
Journal entries
particulars	debit	credit
investment in seida	610000
cash		610000
(to record acquicition of seida stock)
investment in seida	132800
equity income investment in seida		132800
(332000*40%)
(to record income for the year )
equity income investment in seida	6500
investment in seida		6500
(to amortization )
Dividend receivable	40400
investment in seida		40400
(40%x101000)
(to dividend declaration)
cash	40400
dividend receivable		40400
( to collection of dividend from investee)