Milani, Inc, acquired 10 percent of Seida Corporation on January 1, 2017 for $19

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.) View transaction list Journal entry worksheet Record acquisition of Seida stock Note: Enter debits before credits Debit Credit action nvestment in Seida Cash View general journal Clear entry Record entry Next> e Prev 30, 5 ???

Explanation / Answer

Debit credit
1) Investments in seida $6,00,000
        Cash $6,00,000

2) Investments in seida $120,000
       Equity income- Investments in seida $120,000
         (3,00,000 × 40%)

3) Equity income - Investments in seida $1500
          Investments in seida $1500

4) Dividend receivable $44,0000
        Investments in seida $44,000
      ($110,000 ×40%)

5)    cash $44,000
           Dividend receivable $44,000

Explanation:-

Purchase price of 30% of Seida’s stock              $600,000
Fair value of original 10% investment in Seida $200,000
Total fair value of 40% investment in Seida        800,000
Book value of Seida stock ($1,850,000 × 40%)   (740,000)
Fair value in excess of book value                        $60,000
Excess cost assigned to undervalued land
                                         ($120,000 × 40%)            (48,000)
Trademark                                                                $12,000
Remaining life of Trademark                                  8 years
Annual amortization                                                $1,500

Note:- Fair value of original 10% investment in Seida= $2,000,000 × 10% =$2,00,000

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