Question

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $478,050 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider’s book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider’s fair and book value differences as follows: Book Values Fair Values Computer software $ 49,500 $ 88,500 Equipment 55,500 36,400 Client contracts 0 105,000 In-process research and development 0 29,750 Notes payable (104,000 ) (112,850 ) At December 31, 2018, the following financial information is available for consolidation: Pratt Spider Cash $ 15,500 $ 19,200 Receivables 117,000 57,900 Inventory 165,000 103,900 Investment in Spider 478,050 0 Computer software 250,000 49,500 Buildings (net) 600,500 172,500 Equipment (net) 319,000 55,500 Client contracts 0 0 Goodwill 0 0 Total assets $ 1,945,050 $ 458,500 Accounts payable $ (96,300 ) $ (65,500 ) Notes payable (530,750 ) (104,000 ) Common stock (380,000 ) (100,000 ) Additional paid-in capital (170,000 ) (25,000 ) Retained earnings (768,000 ) (164,000 ) Total liabilities and equities $ (1,945,050 ) $ (458,500 ) Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2018.

Answer 1

Consolidated Balance sheet
Cash	$              34,700	Accounts Payable	$           (161,800)
Receivables	$            174,900	Notes Payable	$           (643,600)
Inventory	$            268,900
Computer software	$            338,500
Building(net)	$            773,000	Common Stock	$           (380,000)
Equipment(net)	$            355,400	Additional Paid in capital	$           (170,000)
R&D Asset	$              29,750	Retained earnings	$           (768,000)
Client contracts	$            105,000
Goodwill	$              43,250
Total Assets	$        2,123,400	Total Liabilities & Equity	$       (2,123,400)

EXPLANATION

Consideration Transferred at fair value		$          478,050
Book Value(100000+25000+164000)		$          289,000
Excess fair value over book value		$          189,050
Allocation of excess fair value to
specifi assets and liabilities
Computer software(88500-49500)	$                39,000
Equipment(36400-55500)	$             (19,100)
client contracts	$             105,000
IPR&D	$                29,750
Notes payable(112850-104000)	$                (8,850)	$          145,800
Goodwill		$            43,250

Consolidation Worksheet
			Elimination Entries
	Pratt	Spider		Debit		Credit	Consolidation
Cash	$                15,500	$            19,200					$             34,700
Receivables	$             117,000	$            57,900					$          174,900
Inventory	$             165,000	$          103,900					$          268,900
Investment in spider	$             478,050	$                     -			(S)	$        289,000
					(A)	$        189,050
Computer software	$             250,000	$            49,500	(A)	$          39,000			$          338,500
Building(net)	$             600,500	$          172,500					$          773,000
Equipment(net)	$             319,000	$            55,500			(A)	$          19,100	$          355,400
R&D Asset	$                         -	$                     -	(A)	$          29,750			$             29,750
Client contracts	$                         -	$                     -	(A)	$        105,000			$          105,000
Goodwill	$                         -	$                     -	(A)	$          43,250			$             43,250
Total Assets	$          1,945,050	$          458,500					$       2,123,400
Accounts Payable	$             (96,300)	$          (65,500)					$        (161,800)
Notes Payable	$           (530,750)	$       (104,000)			(A)	$            8,850	$        (643,600)
Common Stock	$           (380,000)	$       (100,000)	(S)	$        100,000			$        (380,000)
Additional Paid in capital	$           (170,000)	$          (25,000)	(S)	$          25,000			$        (170,000)
Retained earnings	$           (768,000)	$       (164,000)	(S)	$        164,000			$        (768,000)
Total liabilities & Equity	$       (1,945,050)	$       (458,500)					$    (2,123,400)