Question

In: Accounting

PACE Corporation acquired all of the outstanding common stock of LINK Inc. on January 1, 2016...

PACE Corporation acquired all of the outstanding common stock of LINK Inc. on January 1, 2016 in exchange

for for 20,000 shares of PACE Corp's $10 par value Common Stock that was trading at $50 a share on that date.

LINK Inc.'s accounting records showed a net book value on that date of $600,000:

Common Stock 200,000

Retained Earnings 400,000

Total Equity 600,000

Equipment on the LINK's books with a 5-year life was undervalued by $150,000. Any additional excess fair value

attributable to the consideration paid was considered to be goodwill with an indefinite life.

PACE Corp. also paid legal and accounting consultants $30,000 and incurred $50,000 stock register and issuance

costs to close the acquisition. For 2016 LINK Inc. reports net income of $100,000 and paid dividends of $50,000.

PACE Corp advanced LINK Inc. $100,000 on 4/1/2016 which was still outstanding at 12/31/2016. PACE Corp. uses the

EquityMethod of account for its investment in LINK Inc.

A. Prepare the journal entry to record PACE Corp's acquisition of LINK Inc. on 1/1/2016.

B. Prepare an Fair Value Allocation of Purchase Price Schedule for this acquition as of 1/1/2016.C.

C. Prepare an Excess Amortization Schedule for this acquition as of 1/1/2016.

D. Complete an analysis of PACE Corp.'s Investment in LINK Inc. for the period 1/1/2016 to 12/31/2016

E. Prepare ALL Consolidation Worksheet Entries S, A, I, D, E & P for year ending December 31, 2016

Expert Solution

A.	Investment in Link Inc	1,000,000
	To Common Stock	200,000
	To Security premium	800,000
	(Being 20000 shares of Link Inc aquired in exchange of 20000 shares of FV of $50 a share)

	Investment in PACE CORP	80,000
	To Bank/ Expense payable	80,000
	(Being Expenses incurred in relation to acquisition added to the investment account)

B.	Fair Value Allocation

	Net book value	600,000
	Equipment (increase in fair value)	150,000
	Goodwill	330,000
	Total	1,080,000

C.	Excess amortization schedule of $150,000
		Opening balance/ Incurred	Amortization during the year	Closing balance
	31/12/2016	150,000	30,000	120,000
	31/12/2017	120,000	30,000	90,000
	31/12/2018	90,000	30,000	60,000
	31/12/2019	60,000	30,000	30,000
	31/12/2020	30,000	30,000	-


D.	Initial investment	1,000,000
	Expenses incurred	80,000
	PACE's share of profit in LINK	100,000
	Dividend received from Link	(50,000)
	Amortzation of excess fair value	(30,000)
	Net investment as at 31.12.2016	1,100,000

E.	Consolidation entries

	Investment in Link Inc	100,000
	To profit and loss account	100,000
	(being profit in Link Inc. accounted for)

	Bank A/c	50,000
	To Investment in Link Inc	50,000
	(being dividend received from Link Inc)

	Profit and Loss a/c	50,000
	To Investment in Link Inc	50,000
	(being excess fair value amortized for the year ended Dec'16)

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