ember 31, Pacifica, Inc., acquired 100 percent of the voting stock of Seguros Compa s as a wholly owned subsidiary with its own legal and accounting identity. The consi er of Seguros included 56,570 newly issued Pacifica common shares ($20 market ement to pay an additional $130,000 cash if Seguros meets certain project complet e following year. Pacifica estimates a 50 percent probability that Seguros will be suc nd uses a 4 percent discount rate to represent the time value of money. ately prior to the acquisition, the following data for both firms were available: Seguros Book Seguros Fair Parifica Values Values
ember 31, Pacifica, Inc., acquired 100 percent of the voting stock of Seguros Compa s as a wholly owned subsidiary with its own legal and accounting identity. The consi er of Seguros included 56,570 newly issued Pacifica common shares ($20 market ement to pay an additional $130,000 cash if Seguros meets certain project complet e following year. Pacifica estimates a 50 percent probability that Seguros will be suc nd uses a 4 percent discount rate to represent the time value of money. ately prior to the acquisition, the following data for both firms were available: Seguros Book Seguros Fair Parifica Values Values
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
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 56,570 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:
Seguros
Seguros
Book
Fair
Pacifica
Values
Values
$(1,270,000)
889,000
(381,000)
Revenues
Expenses
Net income
$
Retained earnings, 1/1
$(1,048,000)
(381,000)
139,000
Net income
Dividends declared
Retained earnings, 12/31
$(1,290,000)
$ 121,000
146,000
457,000
$ 121,000
135,200
623,500
Cash
2$
125,000
Receivables and inventory
Property, plant, and equipment
Trademarks
647,000
1,590,000
378,000
227,000
$ 951,000
284,200
Total assets
$ 2,740,000
Liabilities
(575,000) $ (237,000) $ (237,000)
$
( 400,000)
(475,000)
(1,290,000)
(200,000)
(70,000)
(444,000)
Common stock
Additional paid-in capital
Retained earnings
Total liabilities and equities
$(2,740,000) $(951,000)
In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of
$160,000. Although not yet recorded on its books, Pacifica paid legal fees of $17,300 in connection with the
acquisition and $8,000 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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa92125e1-6c9a-413f-8430-8fbeeff84ac1%2Fc92b26ca-ba8d-46de-821a-16e8a38fe04e%2Fxz3wwll_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 56,570 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:
Seguros
Seguros
Book
Fair
Pacifica
Values
Values
$(1,270,000)
889,000
(381,000)
Revenues
Expenses
Net income
$
Retained earnings, 1/1
$(1,048,000)
(381,000)
139,000
Net income
Dividends declared
Retained earnings, 12/31
$(1,290,000)
$ 121,000
146,000
457,000
$ 121,000
135,200
623,500
Cash
2$
125,000
Receivables and inventory
Property, plant, and equipment
Trademarks
647,000
1,590,000
378,000
227,000
$ 951,000
284,200
Total assets
$ 2,740,000
Liabilities
(575,000) $ (237,000) $ (237,000)
$
( 400,000)
(475,000)
(1,290,000)
(200,000)
(70,000)
(444,000)
Common stock
Additional paid-in capital
Retained earnings
Total liabilities and equities
$(2,740,000) $(951,000)
In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of
$160,000. Although not yet recorded on its books, Pacifica paid legal fees of $17,300 in connection with the
acquisition and $8,000 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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