Question

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $515,300 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	$	40,000			$	76,000
Equipment		86,000				71,100
Client contracts		0				112,400
In-process research and development		0				34,750
Notes payable		(95,000	)			(103,450	)

At December 31, 2018, the following financial information is available for consolidation:

	Pratt				Spider
Cash	$	31,950			$	17,100
Receivables		141,000				62,900
Inventory		183,500				106,000
Investment in Spider		515,300				0
Computer software		213,000				40,000
Buildings (net)		513,000				134,000
Equipment (net)		328,000				86,000
Client contracts		0				0
Goodwill		0				0
Total assets	$	1,925,750			$	446,000
Accounts payable	$	(98,500	)		$	(43,500	)
Notes payable		(519,250	)			(95,000	)
Common stock		(380,000	)			(100,000	)
Additional paid-in capital		(170,000	)			(25,000	)
Retained earnings		(758,000	)			(182,500	)
Total liabilities and equities	$	(1,925,750	)		$	(446,000	)

Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2018.

Answer 1

Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2018.
Pratt Company and Subsidiary
Consolidated Balance Sheet
December 31, 2018.
Assets		Liabilities and Owners’ Equity
Cash	$      49,050.00	Accounts payable	$       (142,000.00)
Receivables	$    203,900.00	Notes payable	$       (622,700.00)
Inventory	$    289,500.00
Computer software	$    289,000.00
Buildings (net)	$    647,000.00
Equipment (net)	$    399,100.00
Client contracts	$    112,400.00	Common stock	$       (380,000.00)
R&D asset	$      34,750.00	Additional paid in capital	$       (170,000.00)
Goodwill	$      48,000.00	Retained earnings	$       (758,000.00)
Total assets	$ 2,072,700.00	Total liabilities and equities	$    (2,072,700.00)
Consideration transferred at fair value		$                       515,300.00
Book value		$                     (307,500.00)
Excess fair over book value		$                       207,800.00
Allocation of excess fair value to
specific assets and liabilities:
to computer software	$      36,000.00
to equipment	$    (14,900.00)
to client contracts	$    112,400.00
to IPR&D	$      34,750.00
to notes payable	$      (8,450.00)	$                       159,800.00
Goodwill		$                         48,000.00