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:|
|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?|
|Consolidated net income for Phoenix and Sedona for 2015 is $228,800|
|Phoenix revenues (A)||$ 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|
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