Question

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $550,200 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	$	26,000			$	90,500
Equipment		60,000				43,300
Client contracts		0				139,000
In-process research and development		0				26,000
Notes payable		(103,500	)			(113,100	)

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

	Pratt				Spider
Cash	$	9,400			$	43,000
Receivables		113,500				89,000
Inventory		144,000				100,000
Investment in Spider		550,200				0
Computer software		242,500				26,000
Buildings (net)		601,250				150,500
Equipment (net)		279,000				60,000
Client contracts		0				0
Goodwill		0				0
Total assets	$	1,939,850			$	468,500
Accounts payable	$	(95,100	)		$	(55,000	)
Notes payable		(519,750	)			(103,500	)
Common stock		(380,000	)			(100,000	)
Additional paid-in capital		(170,000	)			(25,000	)
Retained earnings		(775,000	)			(185,000	)
Total liabilities and equities	$	(1,939,850	)		$	(468,500	)

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

Answer 1

Consolidated Balance Sheet ($)

	Pratt	Spider	Consolidation Adjustment	Consolidated Balance
Assets:
Cash	9400	43,000		52,400
Receivables	113,500	89,000		202,500
Inventory	144,000	100,000		244,000
Investment in Spider	550,200	0	-550,200	0
Computer software	242,500	26,000	+64,500	333,000
Building	601,250	150,500		751,750
Equipment	279,000	60,000	-16,700	322,300
Client Contract			+139,000	139,000
In process R&D			+26,000	26000
Goodwill			+37,000	37,000
Total assets	1,939,850	468,500	-300,400	2,107,950
Accounts Payable	95,100	55,000		150,100
Notes Payable	519,750	103,500	+9,600	632,850
Common Stock	380,000	100,000	-100,000	380,000
Additional Paid In	170,000	25,000	-25,000	170,000
Retained Earnings	775,000	185,000	-185000	775,000
Total Equity and liabilities	1,939,850	468,500	-300,400	2,107,950

Goodwill is arrived as follows:

	Amt ($)
Investment in Spider	550,200
Less: Common Stock	100,000
Additional Paid in	25,000
Retained Earnings	185,000
Difference in fair value and book value	203,200
Balance is Goodwill	37,000