Question

On January 1, 2013, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc. for $774,000 cash. At January 1, 2013, Sedona’s net assets had a total carrying amount of $510,000. Equipment (eight-year remaining life) was undervalued on Sedona’s financial records by $142,400. 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 $40,000 dividend. Sedona recorded net income of $134,000 in 2013 and $159,750 in 2014.

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

	Phoenix	Sedona
2015 Revenues	$625,000	$307,000
2015 Expenses	429,000	226,000
2015 Income from Sedona	32,800
Retained earnings 12/31/15	304,000	249,750

What is consolidated net income for Phoenix and Sedona for 2015?

$196,000.

$228,800.

$253,800.

$263,800.

Answer 1

SOLUTION
Consolidated net income for Phoenix and Sedona for 2015 is $228,800
Particulars	Amount ($)
Phoenix revenues (A)	$         625,000
Phoenix expenses (B)	$         429,000
Net income before Sedona effect [C=(A-B)]	$         196,000
Equity income from Sedona (D)	$           32,800
Consolidated net income (C+D)	$         228,800
Option B is Correct