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.
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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
56,500 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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