Question

On December 31, Pacifica, Inc., acqulred 100 percent of the voting stock of Seguros Company. Pacifica will malntain Seguros as a wholly owned subsldlary with its own legal and accounting identity. The consideration transferred to the owner of Seguros Included 54,595 newly Issued Pacifica common shares ($20 market value, $5 par value) and an agreement to pay an additional $130,000 cash If Seguros meets certaln project completion goals by December 31 of the following year. Pacifica estimates a 50 percent probablity 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 eguros Seguros Pacifica Book Values Fair Values $(1,688,8e8) Revenues Expenses 1,12e,0e8 s (488,8e8) (969,8e8) (488,888) Net income Retained earnings, 1/1 Net income Dividends declared 173,888 $ (1,276,888) Retained earnings, 12/31 Cash Receivables and inventory Property, plant, and equipment Trademarks S 184,80 136,e 136,e8 95,488 661,808 275,8e8 591,888 1,56e,8e8 318,888 2,653,808 115,888 479,808 224,808 954,808 Total assets Liabilities Common stock Additional paid-in capital Retained earnings s (582,888) (231,8)(231,8e8) (488,888) (288,888) (78,8ee) 0) (453,80e) S (2,653,8e8) (954,8e0) (475,8e8) 1,276,888 Total liabilities and equities In addition, Pacifica assessed a research and development project under way at Seguros to have a falr value of $109,000. Although not yet recorded on Its books, Pacifica pald legal fees of $15,900 In connection with the acqulsition and $9,500 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

Cash

	Debit	Credit
Beginning balance	2,300
Accounts Receivable	9,100
Advertising Expense		1,100
Accounts Payable		2,600
Deferred Revenue	1,200
Ending balance		8,900

Accounts Receivable

	Debit	Credit
Beginning balance	3,100
Service Revenue	8,500
Cash		9,100
Ending balance		2,500

Supplies

	Debit	Credit
Beginning balance	290
Accounts Payable	1,750
Ending balance		2,040

Accounts Payable

	Debit	Credit
Beginning balance		2,400
Supplies		1,750
Cash	2,600
Ending balance	1,550

Deferred Revenue

	Debit	Credit
Beginning balance		190
Cash		1,200
Ending balance	1,390

Service Revenue

	Debit	Credit
Beginning balance		0
Accounts Receivable		8,500
Ending balance	8,500

Advertising Expense

	Debit	Credit
Beginning balance	0
Cash	1,100
Ending balance		1,100