Question

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $196,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2018, Milani purchased an additional 30 percent of Seida for $647,000 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, 2018 book value equaled $1,900,000, although land was undervalued by $131,000. 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 $342,000 and declared and paid dividends of $102,000. 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.)

Event	Account Title	Debit	Credit
1	investment in Seida
	cash
	(to record acquisition)
2	investment in Seida
	equity income-investment in Seida
	(to record income for the year)
3	equity income-investment in Seida
	investment in Seida
	(annual amortization of trademark)
4	dividend revenue
	investment is Seida
5	cash
	dividend revenue
	(to record collection of dividend)

Answer 1

Event	Account Title	Debit	Credit
1	investment in Seida	$647,000
	cash		$647,000
	(to record acquisition)
2	investment in Seida ($342,000 x 40%)	$136,800
	equity income-investment in Seida		$136,800
	(to record income for the year)
3	equity income-investment in Seida	$4,950
	investment in Seida		$4,950
	(annual amortization of trademark)
4	dividend revenue ($102,000 x 40%)	$40,800
	investment is Seida		$40,800
5	cash	$40,800
	dividend revenue		$40,800
	(to record collection of dividend)

Purchase price of 30% of Seida's stock	$647,000
Fair value of 10% investment in Seida ($2,050,000 x 10%)	$205,000
Total FV of 40%	$852,000
Book Value ($1,900,000 x 40%)	($760,000)
FV in excess of BV	$92,000
Excess cost assigned to under valued land ($131,000 x 40%)	(52,400)
Trademark	$39,600
Remining life of trademark	8
Annual amortization	$4,950