Question - On January 1, 2011, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona, Inc. for $600,000 cash. At January 1, 2011, 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 paid a $20,000 dividend. Sedona recorded income of $70,000 in 2011 and $80,000 in 2012.
Selected account balances from the two companies' individual records were as follows:
Phoenix Sedona
2013 Revenues $498,000 $285,000
2013 Expenses 350,000 195,000
2013 Income from Sedona 55,000
Retained earnings 12/31/13 250,000 175,000
a. What is the consolidated net income for Phonenix and Sodena for 2013.
b. What is Phoenix's consolidated retained earnings balance at December 31, 2013?
c. On its December 31, 2013, consolidated balance sheet, what amount should phonenix report for Sedona customer list?
Source: Advanced Accounting (440)- Consolidation - Subsequent to the date of Acquisition.