Phoenix Sedona 2018 Revenues 2018 Expenses 2018 Income from Sedona Retained earnings 12/31/18 $498,000 350,000 $285,000 55,000 175,000 250,000
Problems 10, 11, and 12 relate to the following:
On January 1, 2016, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc., for $600,000 cash. At January 1, 2016, Sedona’s net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Sedona’s 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 declared a $20,000 dividend. Sedona recorded net income of $70,000 in 2016 and $80,000 in 2017.
Selected account balances from the two companies’ individual records were as follows:
On its December 31, 2018, consolidated
a. $10,000
b. $20,000
c. $25,000
d. $50,000
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