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 fora transaction/event, select "No journal entry required" in the first account field.)

Journal Entries Include

1. Investment In Seida

Cash

2. Investment in Seida

Equity Income in Investment in Seida

3. Equity Income in Investment in Seida

  Investment in Seida

4. Dividend receivable

Investment in Seida

5. Cash

Dividend Receivable

Answer 1

	Account Titles and Explanation	Debit	Credit
	Investment in Seida	$ 6,55,000
	Cash		$ 6,55,000
	(Being Investment recoded)
	Investment in Seida ($282000 X 40%)	$ 1,12,800
	Equity income in Investment in Seida		$ 1,12,800
	(Being Income recorded)
	Equity income in Investment in Seida	$       8,625
	Investment in Seida		$       8,625
	(Being Amortization of trademarks recorded)
	Dividend receivable ($119000 X 40%)	$     47,600
	Investment in Seida		$     47,600
	(Being dividend payable recorded)
	Dividend receivable	$     47,600
	Cash		$     47,600
	(Being dividend paid recorded)
	Workings:
	Purchase Price Seida Stock - 30%	=	$ 6,55,000
Add:	Fair Value of Seida Investment - 10% ($1980000 X 10%)	=	$ 1,98,000
	Total Fair Value in Seida - 40%	=	$ 8,53,000
Less:	Book Value of Seida Stock - 40% ($1830000 X 40%)	=	$ 7,32,000
	Fair value in excess	=	$ 1,21,000
Less:	Cost assigned to undervalued Land ($130000 X 40%)	=	$     52,000
(a)	Trademark Value	=	$     69,000
(b)	Remaining life of Trademarks	=	8 years
(a) / (b)	Annual Amortization	=	$       8,625

Answer 2

The last jouranl entry needs to be in the oposite order, the debit is to cash becuase they are being paid and the credit is to dividends receivable because they need reverse the receivble now that they received it