ACC – Pecos Company

“Pecos
Company acquired 100 percent of Suaro’s outstanding stock for $1,450,000 cash
on January 1,
2012,
when Suaro had the following balance sheet:
Assets
Liabilities and Equity
Cash
. . . . . . . . . . . . . . . . $ 37,000 Liabilities . . . . . . . . . . . . .
. . . $(422,000)
Receivables
. . . . . . . . . . . 82,000
Inventory
. . . . . . . . . . . . . 149,000 Common stock . . . . . . . . . . . (350,000)
Land
. . . . . . . . . . . . . . . . 90,000 Retained earnings . . . . . . . . .
(126,000)
Equipment
(net) . . . . . . . . 225,000
Software
. . . . . . . . . . . . . 315,000
Total
assets . . . . . . . . . . $898,000 Total liabilities and equity . . $(898,000)

At
the acquisition date, the fair values of each identifiable asset and liability
that differed from book
value
were as follows:
Land
$ 80,000
Brand
name 60,000 (indefinite life—unrecognized on Suaro’s books)
Software
415,000 (2-year estimated useful life)
In-Process
R&D 300,000

Additional
Information
•
Although at acquisition date Pecos expected future benefits from Suaro’s
in-process research and
development
(R&D), by the end of 2012, it became clear that the research project was a
failure with
no
future economic benefits.
•
During 2012, Suaro earns $75,000 and pays no dividends.
•
Selected amounts from Pecos and Suaro’s separate financial statements at
December 31, 2013, are
presented
in the consolidated information worksheet. All consolidated worksheets are to
be prepared
as
of December 31, 2013, two years subsequent to acquisition.
•
Pecos’s January 1, 2013, Retained Earnings balance—before any effect from
Suaro’s 2012 income—
is
$(930,000) (credit balance).
•
Pecos has 500,000 common shares outstanding for EPS calculations and reported
$2,943,100 for consolidated assets
at the beginning of the period.