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    Investments Milani Investment in Associate

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    suruth242
    Milani, Inc. accounts for its investment in its associate, Seida, using the equity method. This requires recognizing the investment at cost and adjusting it over time to reflect Milani's share of Seida's profits and losses. Milani calculates its share of Seida's 2021 net income of $288,000 as 40% of this amount, or $115,200. Milani also amortizes $950 of the excess cost allocated to Seida's trademark. Finally, Milani records a $43,200 dividend declared by Seida that reduces the carrying amount of its investment.

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    Investments Milani Investment in Associate

    Uploaded by

    suruth242
    21 views1 page
    Milani, Inc. accounts for its investment in its associate, Seida, using the equity method. This requires recognizing the investment at cost and adjusting it over time to reflect Milani's share of Seida's profits and losses. Milani calculates its share of Seida's 2021 net income of $288,000 as 40% of this amount, or $115,200. Milani also amortizes $950 of the excess cost allocated to Seida's trademark. Finally, Milani records a $43,200 dividend declared by Seida that reduces the carrying amount of its investment.

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    Milani, Inc. accounts for its investment in its associate, Seida, using the equity method. This requires recognizing the investment at cost and adjusting it over time to reflect Milani's share of Seida's profits and losses. Milani calculates its share of Seida's 2021 net income of $288,000 as 40% of this amount, or $115,200. Milani also amortizes $950 of the excess cost allocated to Seida's trademark. Finally, Milani records a $43,200 dividend declared by Seida that reduces the carrying amount of its investment.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    21 views1 page

    Investments Milani Investment in Associate

    Uploaded by

    suruth242
    Milani, Inc. accounts for its investment in its associate, Seida, using the equity method. This requires recognizing the investment at cost and adjusting it over time to reflect Milani's share of Seida's profits and losses. Milani calculates its share of Seida's 2021 net income of $288,000 as 40% of this amount, or $115,200. Milani also amortizes $950 of the excess cost allocated to Seida's trademark. Finally, Milani records a $43,200 dividend declared by Seida that reduces the carrying amount of its investment.

    Copyright:

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    of 1

    SOLUTION:

    Milani, Inc.
    Investment in associate is accounted for using equity method. Under the equity method, the investment in
    associate is initially recognized at cost and the carrying amount is increased or decreased to recognize the
    investor's share of the profit or loss of the investee after the date of acquisition. The investor's share of the
    profit or loss of the investee is recognized in the investor's profit or loss. Distributions received from an
    investee reduce the carrying amount of the investmnet. Adjustments to the carrying amount may also be
    necessary for the changes in the investor's proportionate interest in the investee arising from changes in the
    investee's equity that have not been recognized in the investee's profit or loss.

    Step 1: Prepare the working computation


    Purchase price of 30% of Seida’s stock $ 612,000
    Fair value of original 10% investment in Seida 204,000
    Total fair value of 40% investment in Seida 816,000
    Less: Book value of Seida stock ($1,890,000 × 40%) 756,000
    Fair value in excess of book value 60,000
    Less: Excess cost assigned to undervalued land
    ($131,000 × 40%) 52,400
    Excess cost assigned to Trademark $ 7,600
    Divide by: Remaining life of Trademark 8
    Annual amortization of trademark $ 950

    Step 2: Prepare the 2021 journal entries


    Transaction General Journal Debit Credit
    1 Investment in Seida 612,000
    Cash 612,000
    To record acquisition of Seida stock

    2 Investment in Seida 115,200


    Equity income–Investment in Seida 115,200
    To record the 40% income earned during period by Seida
    ($288,000 × 40%)

    3 Equity income–Investment in Seida 950


    Investment in Seida 950
    To record 2021 amortization for trademark excess fair value

    4 Dividends receivable 43,200


    Investment in Seida 43,200
    To record dividend declaration from Seida
    ($108,000 × 40%)

    5 Cash 43,200
    Dividends receivable 43,200
    To record collection of dividend from investee

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