On December 31, Pacifica, Incorporated, 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 57,140 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 Items 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 Seguros Fair Values Values Pacifica $ (1,350,000) 945,000 $ (405,000) $ (988,000) (405,000) 95,000 $ (1,298,000) $ 129,000 199,000 2,030,000 336,000 $ 2,694,000 $ (521,000) (400,000) (475,000) (70,000) (1,298,000) (487,000) $ (2,694,000) $ (947,000) 0 0 0 0 0 0 $ 153,000 152,000 468,000 174,000 $947,000 0 0 0 0 0 0 0 $ 153,000 132,500 632,500 223,800 0 (190,000) $ (190,000) (200,000) 0 0 0 In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $136,000. Although not yet recorded on its books, Pacifica paid legal fees of $17,800 in connection with the acquisition and $8,200 in stock issue costs. Required: a. Prepare Pacifica's journal entries to record the consideration transferred to the former owners of Seguros, the direct combination costs, and the stock issue and registration costs.
On December 31, Pacifica, Incorporated, 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 57,140 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 Items 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 Seguros Fair Values Values Pacifica $ (1,350,000) 945,000 $ (405,000) $ (988,000) (405,000) 95,000 $ (1,298,000) $ 129,000 199,000 2,030,000 336,000 $ 2,694,000 $ (521,000) (400,000) (475,000) (70,000) (1,298,000) (487,000) $ (2,694,000) $ (947,000) 0 0 0 0 0 0 $ 153,000 152,000 468,000 174,000 $947,000 0 0 0 0 0 0 0 $ 153,000 132,500 632,500 223,800 0 (190,000) $ (190,000) (200,000) 0 0 0 In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $136,000. Although not yet recorded on its books, Pacifica paid legal fees of $17,800 in connection with the acquisition and $8,200 in stock issue costs. Required: a. Prepare Pacifica's journal entries to record the consideration transferred to the former owners of Seguros, the direct combination costs, and the stock issue and registration costs.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:On December 31, Pacifica, Incorporated, 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 57,140 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
Items
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 Seguros Fair
Values
Values
Pacifica
$ (1,350,000)
945,000
$ (405,000)
$ (988,000)
(405,000)
95,000
$ (1,298,000)
$ 129,000
199,000
2,030,000
336,000
$ 2,694,000
$ (521,000)
(190,000)
(200,000)
(400,000)
(475,000)
(1,298,000)
(70,000)
(487,000)
$ (2,694,000) $ (947,000)
0
0
0
0
0
0
0
$ 153,000
152,000
468,000
174,000
$ 947,000
0
0
0
0
0
0
0
$ 153,000
132,500
632,500
223,800
0
$ (190,000)
0
0
0
0
In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $136,000. Although
not yet recorded on its books, Pacifica paid legal fees of $17,800 in connection with the acquisition and $8,200 in stock issue costs.
Required:
a. Prepare Pacifica's journal entries to record the consideration transferred to the former owners of Seguros, the direct combination
costs, and the stock issue and registration costs.
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