Question

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $487,350 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	$	64,000			$	104,000
Equipment		66,500				47,200
Client contracts		0				103,000
In-process research and development		0				32,000
Notes payable		(90,000	)			(99,850	)

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

	Pratt				Spider
Cash	$	7,700			$	36,500
Receivables		152,000				52,500
Inventory		155,000				89,500
Investment in Spider		487,350				0
Computer software		216,500				64,000
Buildings (net)		601,500				155,000
Equipment (net)		306,000				66,500
Client contracts		0				0
Goodwill		0				0
Total assets	$	1,926,050			$	464,000
Accounts payable	$	(90,800	)		$	(73,500	)
Notes payable		(529,250	)			(90,000	)
Common stock		(380,000	)			(100,000	)
Additional paid-in capital		(170,000	)			(25,000	)
Retained earnings		(756,000	)			(175,500	)
Total liabilities and equities	$	(1,926,050	)		$	(464,000	)

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

Answer 1

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $487,350 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:

$	Proforma Balance Sheet
Cash(7,700+36,500)	44,200	Accounts Payable( 90,800+ 73,500)	(164,300)
Receivables( 152,000 +52,500)	204,500	Notes Payable ( 529,250 + 90,000)	(619,250)
Inventory( 155,000 + 89,500)	244,500	Common Stock ( 380,000 + 100,000)	(480,000)
Computer Software ( 216,500 + 64,000)	280,500	Additional paid in capital(  170,000 + 25,000)	(195,000)
Buildings( 601,500 + 155,000)	756,500	Retained earnings( 756,000 + 175,500)	(931,500)
Equipment ( 306,000 + 66,500)	372,500
Client Contracts	103,000
Goodwill	352,350
In process R&D	32,000
Total Assets	2,449,500	Total Liabilities and equities	(2,390,050)

Accordingly impart good will in proforma balance sheet which is as follows:

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