Question

B. On January 1, 2019, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc. for $626,000 cash. At January 1, 2019, Sedona’s net assets had a total carrying amount of $438,200. Equipment (eight-year remaining life) was undervalued on Sedona’s financial records by $86,000. 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 $31,000 dividend. Sedona recorded net income of $73,000 in 2019 and $92,200 in 2020.

Selected account balances from the two companies’ individual records were as follows:

	Phoenix			Sedona
2021 Revenues	$	650,000		$	304,400
2021 Expenses		436,000			202,000
2021 Income from Sedona		66,200
Retained earnings 12/31/21		346,200			204,300

On its December 31, 2021, consolidated balance sheet, what amount should Phoenix report for Sedona’s customer list?

Multiple Choice

• $20,360

• $10,180

• $25,450

• $50,900

Answer 1

Answer :-

The Correct Answer is Option C - $25,450

Explanation :-

Particular	Amounts
Acquired Price of shares of Sedona , inc.	$626,000
Less :- Book value of Acquired	$438,200
Excess Fair value	$187,800
Less :- Equipment undervalued	$86,000
Excess Fair value to Customer List (For 4 year remaining life)	$101,800

Customer list have 4 year remaining life. So for December 31,2021 -

Customer list = $101,800 / 4 year = $25,450

On December 31, 2021, the amount should Phoenix report for Sedona’s customer list is $25,450.