Question

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $188,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2018, Milani purchased an additional 30 percent of Seida for $637,000 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 $135,000. 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 $308,000 and declared and paid dividends of $108,000. Prepare the 2018 journal entries for Milani related to its investment in Seida.

Answer 1

Answer:

Purchase entry:

Seida Investment   600,000

Trademark                37,000

            Cash                          637,0000

Net Income Entry:

Seida Investment 123,200

          Gain on investment   123,200

Dividends Entry:

cash   43,200

  Seida Investment 123,200

Explanation:

current investment fair value: 2,000,000 x 40% = 800,000

previous value in books:    2,000,000 x 10% =      (200,000)

adjustment on Sieda investment:                            600,000

Purchase for                                                              637,000

TradeMark                                                                   37,000

Milani participation in the income: 308,000 x 40% = 123,200

Milani participation in the dividends: 108,000 x 40% =   43,200