On December 31, 2012, 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 50,000 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, 2013. 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:

In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $100,000. Although not yet recorded on its books, Pacifica paid legal fees of $15,000 in connection with the acquisition and $9,000 in stock issue costs.

Prepare the following:

a. 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. (Use a 0.961538 present value factor where applicable.)

b. A postacquisition column of accounts for Pacifica.

c. A worksheet to produce a consolidated balance sheet as of December 31, 2012. 

Transcribed Image Text:

Seguros Book Values Seguros Fair Values Pacifica S(1,200,000) 875,000 S (325,000) $ (950,000) (325,000) 90,000 Revenues. Expenses Net income Retained earnings, 1/1/12 Net income. Dividends paid.. Retained earnings, 12/31/12 $(1,185,000) Seguros Book Values Seguros Fair Values Pacifica S(1,200,000) 875,000 S (325,000) $ (950,000) (325,000) 90,000 Revenues. Expenses Net income Retained earnings, 1/1/12 Net income. Dividends paid.. Retained earnings, 12/31/12 $(1,185,000)

Answer rating: 100% (QA)

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