PACE Corporation acquired all of the outstanding common stock of LINK Inc. on Ja
ID: 2516713 • Letter: P
Question
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
Explanation / Answer
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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