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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:

Seguros Company outstanding voting shares
acquired by Pacifica Inc.				100%
Pacifica Company's $5 par common stock issued
for acquisition - number of shares				50,000
Market value of Pacifica stock at acquisition date				$ 20
Cash paid by Pacifica when Seguros meets certain goals				$ 130,000
Fair value of Seguros R & D project				$ 100,000
Probability that Seguros will meet goals				50%
Discount rate used to represent time value of money				4%
Legal fees paid by Pacifica in connection with acquisition				$ 15,000
Stock issuance costs paid by Pacifica				$ 9,000
			Seguros Company
			Book	Fair
		Pacifica, Inc.	Values	Values
Revenues		$ (1,200,000)
Expenses		875,000
Net income		$ (325,000)
Retained earnings, 1/1		$ (950,000)
Net income		(325,000)
Dividends paid		90,000
Retained earnings, 12/31		$ (1,185,000)
Cash		$ 110,000	$ 85,000	$ 85,000
Receivables and inventory		750,000	190,000	180,000
Property, plant, and 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)
Common 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)

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