This is a question from the Advanced Accounting (9780077632588) book. Chapter 2,
ID: 2423067 • Letter: T
Question
This is a question from the Advanced Accounting (9780077632588) book. Chapter 2, number 32.
On December 31, 2014, Pacifica, Inc., acquired 100 percent of the voting stock of Seguros Company. Pacifica will maintain Serguros as a wholly owned subsidiary with its own legal and accounting identity. The consideration trasferred 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, 2015. Pacifica estimates a 50 percent probability that Seguros will be successful in meeting these goals and uses a 4 percent discout rate to represent the time value of money. Immediately prior to the acquisition, the following data for both firms were available:
Pacifica // Seguros Book Value // Seguros Fair Value
revenues........................................ $(1,200,000)
expenses...................................... 875,000
net income......................... $(325,000)
retained earnings 1/1/14.............. $(950,000)
net income................................... (325,000)
dividends declared...................... 90,000
retained earnings 12/31/14.................. $(1,185,000)
cash............................................ $110,000 // $85,000 // $85,000
receivables and inventory........................ 750,000 // 190,000 // 180,000
property, plant, & equipment.................. 1,400,000 // 450,000 // 600,000
trademarks............................................. 300,000 // 160,000 // 200,000
total assets.................................. $2,560,000 // $885,000//
liabilities............................................... $(500,000) // (180,000) // (180,000)
commom stock................................... ($400,000) // (200,000)
additional paid in capital..................... (475,000) // (70,000)
retained earnings............................... (1,185,000) // (435,000)
total liabilities and equities.......... $(2,560,000) // $(885,000)
In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $100,000. Athough 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 0961538 present value factor where applicable.)
b. A postacquisition colun of accounts for Pacifica.
c. A worksheet to produce a consolidated balance sheet as of December 31,2014.
Explanation / Answer
Ans.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.
1) Investment in Seguros 1,062,500
Common Stock (50,000*$5) 250,000
Additional Paid in Capital((50,000*$15) 750,000
Contigent Performance obligation 62,500
Contigent Performance is calculated as :
$130,000 payment*50% probality*0.961538 present value factor =$62,500
2) Combination Expenses $15,000
Cash $15,000
3) APIC $9,000
Cash $9,000
Ans b and c A postacquisition colun of accounts for Pacifica and A worksheet to produce a consolidated balance sheet as of December 31,2014.
Particulars Pacifica Seguros Consolidation Entries Consolidation Entries Consolidated Balance sheet revenues (1,200,000) (1,200,000) Expenses 875,000 875,000 net income (325,000) (325,000) Retained Earnings 1/1/14 (950,000) (950,000) net income (325,000) (325,000) Dividend paid 90,000 90,000 Retained Earnings 12/31/14 (1,185,000) (1,185,000) Cash 110,000 85,000 receivables and inventory 750,000 190,000 (A) 10,000 930,000 property, plant, & equipment 1,400,000 450,000 (A) 150,000 2,000,000 Investment in Seguros 1062,500 (S)705,000 0 . (A)357,500 R &D Assets (A)100,000 100,000 Goodwill (A) 77,500 77,500 Trademarks 300,000 160,000 40,000 500,000 Total Assets 3,512,500 885,000 3,607,500 Liabilities (500,000) (180,000) (680,000) Contigent Obligation (62,500) (62,500) Common Stock (650,000) (200,000) (S) 200,000 (650,000) Additional Paid in Capital (1,225,000) (70,000) (S)70000 (1,225,000) Retained Earnings (1,185,000) (435,000) (S) 435,000 (1,185,000) Total Liabilities and Equity (35,12,500) (885,000) (3,607,500)Related Questions
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