2-35. (Prepare a consolidated balance sheet using the acquisition method). a. Journal entries to record the acquisition on Pacifica's records. Investment in Seguros 1,062,500 Common Stock (50,000 * $5) 250,000 Additional Paid-In Capital (50,000 * $15) 750,000 Contingent Performance Obligation 62,500 The contingent consideration is computed as: $130,000 payment * 50% probability * 0.961538 present value factor Professional Services Expense Cash 15,000 15,000 Additional Paid-In Capital Cash 9,000 9,000 $1,062,500 705,000 357,500 Consideration transferred at fair value..... Book value Excess fair over book value.. Allocation of excess fair value to specific assets and liabilities: to receivables and inventory to property plant and equipment............ to trademarks... to in-process research and development Goodwill $(10,000) 150,000 40,000 100,000 280,000 $ 77,500 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 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 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 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 Seguros Book Fair Pacifica Values Values $(1,200,000) 875,000 $ (325,000) $ (950,000) (325,000) 90,000 $(1, 185,000) $ 110,000 $ 85,000 $ 85,000 750,000 190,000 180,000 1,400,000 450,000 600,000 300,000 160,000 200,000 $ 2,560,000 $ 885,000 $ (500,000) $ (180,000) $ (180,000) (400,000) (200,000) (475,000) (70,000) (1, 185,000) (435,000) $(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. 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. 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