On December 31, Pacifica, Inc., acquired 100 percent of the voting stock of Seguros Company. Pacifica will maintain Seguros as awholly owned subsidiary with its own legal and accounting identity. The consideration transferred to the owner of Seguros included56,500 newly issued Pacifica common shares ($20 market value, $5 par value) and an agreement to pay an additional $130,000 cashif Seguros meets certain project completion goals by December 31 of the following year. Pacifica estimates a 50 percent probabilitythat Seguros will be successful in meeting these goals and uses a 4 percent discount rate to represent the time value of money.Immediately prior to the acquisition, the following data for both firms were available:RevenuesExpensesNet incomeRetained earnings, 1/1Net incomeDividends declaredRetained earnings, 12/31CashReceivables and inventoryProperty, plant, and equipmentTrademarksTotal assetsLiabilitiesCommon stockAdditional paid-in capitalRetained earningsTotal liabilities and equitiesSegurosBookValues$SegurosFairValuesPacifica$(2,110,000)1,477,000$ (633,000)$(1,026,000)(633,000)171,000$(1,488,000)93,000162,000 $ 154,000254,0002,190,000353,000487,000248,000$ 2,959,000 $ 982,000$(596,000) $ (258,000) $ (258,000)(400,000) (200,000)(475,000)(70,000)(1,488,000) (454,000)$(2,959,000) $ (982,000)$ 154,00073,500662,500293,000In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $157,000. Although notyet recorded on its books, Pacifica paid legal fees of $24,600 in connection with the acquisition and $11,700 in stock issue costs.a. Prepare Pacifica's entries to account for the consideration transferred to the former owners of Seguros, the direct combination costs,and the stock issue and registration costs.b.&c. Present a worksheet showing the postacquisition column of accounts for Pacifica and the consolidated balance sheet as of theacquisition date.

Journal entries are those entries that are reported into the books of accounts of the company and…

a. Prepare Pacifica's entries to account for the consideration transferred to the former owners of Seguros, the direct combination costs, and the stock issue and registration costs. b.&c. Present a worksheet showing the postacquisition column of accounts for Pacifica and the consolidated balance sheet as of the acquisition date.

a. Prepare Pacifica's entries to account for the consideration transferred to the former owners of Seguros, the direct combination costs, and the stock issue and registration costs. b.&c. Present a worksheet showing the postacquisition column of accounts for Pacifica and the consolidated balance sheet as of the acquisition date.

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Consolidation

Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading structure.

Question

On December 31, Pacifica, Inc., acquired 100 percent of the voting stock of Seguros Company. Pacifica will maintain Seguros as a
wholly owned subsidiary with its own legal and accounting identity. The consideration transferred to the owner of Seguros included
56,500 newly issued Pacifica common shares ($20 market value, $5 par value) and an agreement to pay an additional $130,000 cash
if Seguros meets certain project completion goals by December 31 of the following year. Pacifica estimates a 50 percent probability
that Seguros will be successful in meeting these goals and uses a 4 percent discount rate to represent the time value of money.
Immediately prior to the acquisition, the following data for both firms were available:
Revenues
Expenses
Net income
Retained earnings, 1/1
Net income
Dividends declared
Retained earnings, 12/31
Cash
Receivables and inventory
Property, plant, and equipment
Trademarks
Total assets
Liabilities
Common stock
Additional paid-in capital
Retained earnings
Total liabilities and equities
Seguros
Book
Values
$
Seguros
Fair
Values
Pacifica
$(2,110,000)
1,477,000
$ (633,000)
$(1,026,000)
(633,000)
171,000
$(1,488,000)
93,000
162,000 $ 154,000
254,000
2,190,000
353,000
487,000
248,000
$ 2,959,000 $ 982,000
$
(596,000) $ (258,000) $ (258,000)
(400,000) (200,000)
(475,000)
(70,000)
(1,488,000) (454,000)
$(2,959,000) $ (982,000)
$ 154,000
73,500
662,500
293,000
In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $157,000. Although not
yet recorded on its books, Pacifica paid legal fees of $24,600 in connection with the acquisition and $11,700 in stock issue costs.
a. Prepare Pacifica's entries to account for the consideration transferred to the former owners of Seguros, the direct combination costs,
and the stock issue and registration costs.
b.&c. Present a worksheet showing the postacquisition column of accounts for Pacifica and the consolidated balance sheet as of the
acquisition date.

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