Question

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $200,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2018, Milani purchased an additional 30 percent of Seida for $644,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $1,920,000 in total. Seida's January 1, 2018 book value equaled $1,770,000, although land 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 $324,000 and declared and paid dividends of $107,000. 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

Since Milani has significant influence on Seida, it will use Equity Accounting method for it's investment. Under this method there will be no adjustment for fair value and goodwill.

	Particulars	Debit	Credit
1	Investment in Sedia	644,000
	Cash		644,000
2	Investment in Sedia	129,600		40% share in Sedia's income as per equity method
	Income from Sedia		129,600	40% share in Sedia's income as per equity method
3	Cash	42,800		40% share in Sedia's dividend as per equity method
	Investment in Sedia		42,800	40% share in Sedia's dividend as per equity method