Question

B. On January 1, 2019, Phoenix Co. acquired 100 percent of the outstanding voting shares of...

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

Business   Accounting   
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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.

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