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 Seguros Seguros Pacifica Book Values Fair Values $ (2,110,000) Revenues Expenses 1 , 477, 000 Net income $ (633,000) Retained earnings, 1/1 Net income Dividends declared $ (1,026,0e) (633,000) 171,000 Retained earnings, 12/31 Cash Receivables and inventory Property, plant, and equipment Trademarks $(1,488,000) $ 162,000 154,000 $154,000 73,500 662,50e 293,000e 93,000 487,000 248,00e 2,959,00 $ 982,000 254,0080 2,190,0ee 353,00e Total assets Liabilities Common stock Additional paid-in capital Retained earnings $ (596,00) (258,000) (258,000) (400,000) (200,000) (7,000) (1,488,000) (454,008 $(2,959,000) (982,000) (475,000) Total liabilities and equities 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

Answer 1

Part A

Account titles and explanation	debit	credit
Investment in Seguros	1192500
Common Stock (56500 × $5)		282500
Additional Paid-In Capital (56500 × $15)		847500
Contingent performance obligation (130000*50%*0.961538)		62500
(to record the acquisition on Pacifica’s records)
Professional Services Expense	24600
Cash		24600
Additional Paid-In Capital	11700
Cash		11700

Part B & C

	Pacifica	Seguros	Consolidation Entries		Consolidated Balance Sheet
Revenues	(2110000)				(2110000)
Expenses	1477000				1477000
Net income	(633000)				(633000)
Retained earnings, 1/1	(1026000)				(1026000)
Net income	(633000)				(633000)
Dividends declared	171000				171000
Retained earnings, 12/31	(1488000)				(1488000)
Cash	125700	154000			279700
Receivables and inventory	254000	93000		19500	327500
Property, plant and equipment	2190000	487000	175500		2852500
Investment in Seguros	1228800			1228800	0
Research and development asset			157000		157000
Goodwill			146800		146800
Trademarks	353000	248000	45000		646000
Total assets	2959000	982000			(4409500)
Liabilities	(596000)	(258000)			(854000)
Contingent performance obligation	(62500)				(62500)
Common stock	(682500)	(200000)	200000		(682500)
Additional paid-in capital	(1322500)	(70000)	70000		(1322500)
Retained earnings	(1488000)	(454000)	454000		(1488000)
Total liabilities and equities	(2959000)	(982000)			(4409500)

162000-24600-11700 = 125700

93000-73500 = 19500

662500-487000 = 175500

293000-248000 = 45000

400000+282500 = 682500

475000+847500 = 1322500