Problem 2-35 (Algo) (LO 2-4, 2-5, 2-6b, 2-6c, 2-7) 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 59,530 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 Book Seguros Pacifica Values Fair Values $(2,150,000) 1,505,000 $ (645,000) $(1,013,000) (645,000) 183,000 $(1,475,000) $ 173,000 $ 105,000 $ 105,000 811,000 174,000 154,100 1,530,000 496,000 695,500 368,000 234,000 279,000 $ 2,882,000 $ 1,009,000 $ (532,000) $ (258,000) $ (258,000) (400,000) (200,000) (475,000) (70,000) (1,475,000) (481,000) $(2,882,000) $(1,009,000) In addition, Pacifica assessed a research and development project under way at Seguros to have a fair value of $197,000. Although not yet recorded on its books, Pacifica paid legal fees of $19,100 in connection with the acquisition and $9,700 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. PACIFICA, INC. AND SEGUROS CO. Consolidation Worksheet For Year Ending December 31 Consolidation Entries Accounts Pacifica Seguros Debit Credit Consolidated Totals $ Revenues Expenses Net income $ 2,150,000 $ (752,500) 0 X 0 2,150,000 1,505,000 X 645.000 X Retained earnings, 1/1 Net income 0 0 1,013,000 (645,000) 183,000 $ 1,475,000 X 1,013,000 645,000 X 183,000 1,475,000 X Dividends declared Retained earnings, 12/31 $ $ 278,000 X 19,900 $ 105,000 X $ 105,000 811,000 174,000 1,530,000 496,000 1,253,100 0 0 0 965,100 2,225,500 Cash Receivables and inventory Property, plant and equipment Investment in Seguros Research and development asset Goodwill Trademarks 199,500 1,253,100 0 197,000 197,000 0 0 80,500 45.000 80,500 647,000 368,000 234,000 Total assets $ 4,067,100 $ 4,393,100 1,009,000 $ 532,000$ 258,000 $ 790.000 62,500 0 62,500 Liabilities Contingent performance obligation Common stock Additional paid-in capital Retained earnings Total liabilities and equities 697,650 (1,367,950) 1,475,000 X 200,000 70,000 481,000 200,000 70,000 481,000 697,650 1,322,500 X 1,488,000 X $ 1,399,200 $ 1,009,000 1,273,000 4,360,650 1,273,000