Advanced Accounting 10th Edition by Thomas Schaefer, Joe Ben Hoyle, Timothy Doupnik

Exercise 12

The Acquisition Method
On December 31, 2010, 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, 2011.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.
Using the acquisition method, 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, 2010.