On January 1, 2011, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc. for $600,000 cash. At January 1, 2011, Sedona\'s net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Sedonass financial records by $80,000. Any remaining excess fair over book value was attributed to a customer list developed by Sedona (four-year remaining life), but not recorded on its books. Phoenix applies the equity method to account for its investment in Sedona. Each year since the acquisition, Sedona has paid a $20,000 dividend. Sedona recorded income of $70,000 in 2011 and $80,000 in 2012.
Selected account balances from the two companies
Solution
Income from phoenix = Revevue - Expenditure = $148,000
Income from Sedona = $55,000
Net consolidated income = $148,000+$55,000 = $203,000
Answer B $203,000
.
On January 1- 2011- Phoenix Co- acquired 100 percent of the outstandin.docx
1. On January 1, 2011, Phoenix Co. acquired 100 percent of the outstanding voting shares of
Sedona Inc. for $600,000 cash. At January 1, 2011, Sedona's net assets had a total carrying
amount of $420,000. Equipment (eight-year remaining life) was undervalued on Sedonass
financial records by $80,000. Any remaining excess fair over book value was attributed to a
customer list developed by Sedona (four-year remaining life), but not recorded on its books.
Phoenix applies the equity method to account for its investment in Sedona. Each year since the
acquisition, Sedona has paid a $20,000 dividend. Sedona recorded income of $70,000 in 2011
and $80,000 in 2012.
Selected account balances from the two companies
Solution
Income from phoenix = Revevue - Expenditure = $148,000
Income from Sedona = $55,000
Net consolidated income = $148,000+$55,000 = $203,000
Answer B $203,000
