Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $
ID: 2328725 • Letter: M
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 $638,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $2,020,000 in total. Seida's Jaquary 1, 2018 book value equaled $1,870,000, although fänd was undervalued by $138,000. 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 $287000 and declared and paid dividends of $118,000. 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.)Explanation / Answer
Working Notes:
Entry 2) Investment in Seida Corp = Reported Income * 40% (i.e. 10+30)
= 287,000 * 40%
= 114,800 $
Entry 3)
Entry 4 & 5 ) Dividend Amount = ?
Dividend receivable = paid Dividend * 40%
= 118,000 * 40%
= 47,200
Date Particulars Debit $ Credit $ 1) Jan.1, 2018 Investment in Seida Corp. a/c Dr. 638,000 To Cash 638,000 2) Dec. 31, 2018 Investment in Seida Corp. a/c Dr, 114,800 To Equity 114,800 3) Dec. 31, 2018 Equity Income Investment a/c Dr. 4,600 To Investment in Seida Corp. 4,600 4) Dec.31, 2018 Dividend Receivable a/c Dr. 47,200 To Investment in Seida Corp. 47,200 5) Dec 31, 2018 Cash a/c Dr. 47,200 To Dividend Receivable 47,200