Question

Milani, inc., acquired 10 percent of seida corporation on january 1, 2017, for $190,000 and appropriately accounted for the investment using the fair-value method. on january 1, 2018, milani purchased an additional 30 percent of seida for $600,000 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 $120,000. 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 $300,000 and declared and paid dividends of $110,000. 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.)

Answer 1

The 2018 journal entries for Milani related to its investment in Seida are its share in net income and share in dividends. The investment in considered as investment in associate since there is already the significant influence in Seida. These are the journal entries: 

 

Investment in Seida                                                             12,0000 

       Share in net income of Seida ($30,000 x 40%)                            12,000 

               #

Cash ($110,000 x 40%)                    44,000 

        Investment in Seida                                   44,000 

               #