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 55,370 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: Pacifica Seguros Book Values Seguros Fair Values Revenues $ (1,320,000 ) Expenses 924,000 Net income $ (396,000 ) Retained earnings, 1/1 $ (1,035,000 ) Net income (396,000 ) Dividends declared 174,000 Retained earnings, 12/31 $ (1,257,000 ) Cash $ 120,000 $ 90,000 $ 90,000 Receivables and inventory 726,000 321,000 303,100 Property, plant, and equipment 1,540,000 465,000 625,000 Trademarks 340,000 182,000 224,800 Total assets $ 2,726,000 $ 1,058,000 Liabilities $ (594,000 ) $ (276,000 ) $ (276,000 ) Common stock (400,000 ) (200,000 ) Additional paid-in capital (475,000 ) (70,000 ) Retained earnings (1,257,000 ) (512,000 ) Total liabilities and equities $ (2,726,000 ) $ (1,058,000 ) In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $112,000. Although not yet recorded on its books, Pacifica paid legal fees of $22,500 in connection with the acquisition and $10,400 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. Record the acquisition of Seguros Company. b.&c. Present a worksheet showing the postacquisition column of accounts for Pacifica and the consolidated balance sheet as of the acquisition date.

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 55,370 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: Pacifica Seguros Book Values Seguros Fair Values Revenues $ (1,320,000 ) Expenses 924,000 Net income $ (396,000 ) Retained earnings, 1/1 $ (1,035,000 ) Net income (396,000 ) Dividends declared 174,000 Retained earnings, 12/31 $ (1,257,000 ) Cash $ 120,000 $ 90,000 $ 90,000 Receivables and inventory 726,000 321,000 303,100 Property, plant, and equipment 1,540,000 465,000 625,000 Trademarks 340,000 182,000 224,800 Total assets $ 2,726,000 $ 1,058,000 Liabilities $ (594,000 ) $ (276,000 ) $ (276,000 ) Common stock (400,000 ) (200,000 ) Additional paid-in capital (475,000 ) (70,000 ) Retained earnings (1,257,000 ) (512,000 ) Total liabilities and equities $ (2,726,000 ) $ (1,058,000 ) In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $112,000. Although not yet recorded on its books, Pacifica paid legal fees of $22,500 in connection with the acquisition and $10,400 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. Record the acquisition of Seguros Company. 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

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Immediately prior to the acquisition, the following data for both firms were available:

	Pacifica		Seguros Book Values	Seguros Fair Values
Revenues	$	(1,320,000	)
Expenses		924,000
Net income	$	(396,000	)
Retained earnings, 1/1	$	(1,035,000	)
Net income		(396,000	)
Dividends declared		174,000
Retained earnings, 12/31	$	(1,257,000	)
Cash	$	120,000		$	90,000		$	90,000
Receivables and inventory		726,000			321,000			303,100
Property, plant, and equipment		1,540,000			465,000			625,000
Trademarks		340,000			182,000			224,800
Total assets	$	2,726,000		$	1,058,000
Liabilities	$	(594,000	)	$	(276,000	)	$	(276,000	)
Common stock		(400,000	)		(200,000	)
Additional paid-in capital		(475,000	)		(70,000	)
Retained earnings		(1,257,000	)		(512,000	)
Total liabilities and equities	$	(2,726,000	)	$	(1,058,000	)

In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $112,000. Although not yet recorded on its books, Pacifica paid legal fees of $22,500 in connection with the acquisition and $10,400 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.

Record the acquisition of Seguros Company.

b.&c. Present a worksheet showing the postacquisition column of accounts for Pacifica and the consolidated balance sheet as of the acquisition date.

Cash
90,000
726,000
1,540,000
Receivables and inventory
321,000
17,900
1,029, 100
Property, plant and equipment
465,000
160,000
2,165.000
Investment in Seguros
of
Research and development asset
112,000
112,000
Goodwill
340,000
182,000
42,800
564,800
$ 3,870.900
Trademarks
Total assets
$ 2.606,000 $ 1,058,000
$ 594,000s 270,000
ofs
870,000
Liabilities
Contingent performance obligation
200,000
70,000
512,000
$ 860.201 $ 1,058,000 $ 1,006,800 S
Common stock
206,201
200,000
70,000
512.000
Additional paid-in capital
of
Retained eamings
Total labilities and equities
17,900 S
870,000

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