Question

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $495,000 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	$ 20,000	$  70,000
Equipment	40,000	30,000
Client contracts	–0–	100,000
In-process research and development	–0–	40,000
Notes payable	(60,000)	(65,000)

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

Page 83

	Pratt	Spider
Cash	$      36,000	$   18,000
Receivables	116,000	52,000
Inventory	140,000	90,000
Investment in Spider	495,000	–0–
Computer software	210,000	20,000
Buildings (net)	595,000	130,000
Equipment (net)	308,000	40,000
Client contracts	–0–	–0–
Goodwill	–0–	–0–
Total assets	$ 1,900,000	$ 350,000
Accounts payable	$     (88,000)	$  (25,000)
Notes payable	(510,000)	(60,000)
Common stock	(380,000)	(100,000)
Additional paid-in capital	(170,000)	(25,000)
Retained earnings	(752,000)	(140,000)
Total liabilities and equities	$(1,900,000)	$(350,000)

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

Answer 1

Particulars				Pratt	spider	debit	Credit	Consolidated
Cash				36000	18000			54000
Receivables				116000	52000			168000
inventory				140000	90000			230000
investment in spider				495000			265000
							230000
Computer software				210000	20000	50000		280000
Net Building				595000	130000			725000
net equipment				308000	40000		10000	338000
Client contracts						100000		100000
Research & Development assets						40000		40000
Goodwill						55000		55000
Total Assets				1900000	350000			1990000
Account payable				-88000	-25000			-113000
Notes payable				-510000	-60000		5000	-575000
Common stock				-380000	-100000	100000		-380000
Additional paid in capital				-170000	-25000	25000		-170000
Retained earning				-752000	140000	140000		-752000
total Laibilities & Equities				-1900000	-350000	510000	510000	-1990000
GOODWILL
Consolidation t/f at fair value					495000
Book value					265000
excess					230000
allocation of excess fair value to specific assets & laibilities
computer software				50000
equipment				-10000
client contracts				100000
in process research & development				40000
notes payable				-5000	175000
Goodwill					55000
CONSOLIDATED BALANCE SHEET (Figures in $)
Assets				Amount	Laibilities			Amount
Cash				54000	Accounts payable			113000
receivable				168000	notes payable			575000
inventory				230000
computer software				280000
building				725000	Common stock			380000
equipment				338000	additional paid in capital			170000
client contracts				100000	retained earning			752000
Research & Development assets				40000
Goodwill				55000
total assets				1990000	total laibilities			1990000