Question

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $199,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2018, Milani purchased an additional 30 percent of Seida for $655,000 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 $119,000. 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. Record collection of dividend from investee.

Answer 1

Purchase price of 30% of Seida’s stock			655,000
Add: Fair value of original 10% investment in Seida (1,980,000*10%)			198,000
Total fair value of 40% investment in Seida			853,000
Less: Book value of Seida stock (1830000*40%)			(732,000)
Fair value in excess of book value			121,000
Excess cost assigned to undervalued land (130000*40%)			(52,000)
Excess cost assigned to Trademark			69,000
Divided by: Remaining life of Trademark			8 years
Annual Amortization on Excess cost assigned to Trademark			$            8,625
Transaction	Journal General	Debit	Credit
1	Investment in Seida	655,000
	To Cash		655,000
	(To record acquisition of Seida stock.)
2	Investment in Seida	112,800
	Equity Income - Investment in Seida		112,800
	(To Record income for the year: 40% of the $282,000 reported income.)
3	Equity Income - Investment in Seida	8,625
	Investment in Seida		8,625
	(To Record 2018 amortization for trademark excess fair value.)
4	Dividends receivable	47,600
	Investment in Seida		47,600
	(To Record dividend declaration from Seida.) (119000*40%)
5	Cash	47,600
	Dividends receivable		47,600
	(To Record collection of dividend from investee.)