Ch 1 acc hw 2 - Homework answers PDF

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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 $686,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $2,080,000 in total. Seida's January 1, 2018 book value equaled $1,930,000, although land was undervalued by $136,000. 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 $286,000 and declared and paid dividends of $100,000. Prepare the 2018 journal entries for Milani related to its investment in Seida

Purchase price of 30% of Seida’s stock Fair value of original 10% investment in Seida Total fair value of 40% investment in Seida Book value of Seida stock ($1,930,000 × 40%) Fair value in excess of book value Excess cost assigned to undervalued land ($136,000 × 40%) Trademark Remaining life of Trademark Annual amortization

$

$

$ $

686,000 (208,000) 894,000 (772,000) 122,000 (54,400) 67,600 8 years 8,450

Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2018, the balance in the Investment in Lindman account is $419,000. Amortization associated with this acquisition is $15,600 per year. In 2018, Lindman earns an income of $135,000 and declares cash dividends of $45,000. Previously, in 2017, Lindman had sold inventory costing $30,400 to Matthew for $38,000. Matthew consumed all but 25 percent of this merchandise during 2017 and used the rest during 2018. Lindman sold additional inventory costing $41,800 to Matthew for $55,000 in 2018. Matthew did not consume 40 percent of these 2018 purchases from Lindman until 2019. a. what amount of equity method income would matthew recognize in 2018 from its ownership interest in lindman? Equity income accrual—2018 ($135,000 40,50 $ 0 × 30%) (15,60 ) Amortization—2018 (given) 0 Intra-entity profit recognized on 2017 570 transfer* Intra-entity profit deferred on 2018 (1,584) transfer** 23,88 Equity income recognized by Matthew $ in 2018 6

*Gross profit rate (GPR) on 2017 transfer ($7,600/$38,000) Intra-entity gross profit:

20

9,50 0 × 20% × 30%

Remaining inventory (38,000 × 25%)

$

GPR (above) Ownership percentage Intra-entity profit deferred from 2017 until 2018

**GPR on 2018 transfer ($13,200/$55,000)

$ 570

24%

Intra-entity gross profit: Remaining inventory (55,000 × 40%) GPR (above)

%

$

22,00 0 × 24%...