Question
On January 1, 2018 Phoenix Co. acquired 100% of the outstanding voting shares of Sedona Inc. for $1,000,000 in cash. At January 1, 2018,
On January 1, 2018 Phoenix Co. acquired 100% of the outstanding voting shares of Sedona Inc. for $1,000,000 in cash. At January 1, 2018, Sedona's net assets had a total book value of $770,000. Equipment (8- year remaining life) was undervalued on Sedona's financial records by $80,000. A patent developed by Sedona (5-year remaining life) was valued at $100,000, although it was not recorded on Sedona's books. Any remaining excess fair over book value was attributed to goodwill. Phoenix applies the equity method to account for its investment in Sedona. The beginning balance of Phoenix's Retained Earnings on January 1, 2018 was $500,000. Phoenix reported Net Income of $100,000 in 2018 and $120,000 in 2019, while Sedona recorded $50,000, and $70,000 in those same periods. Phoenix paid a $50,000 dividend in 2018 and $60,000 in 2019, while Sedona paid dividends of $25,000 in each year. Selected accounts from the two companies' individual records for 2020 were as follows:
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started