Question

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2015, for $528,900 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	$	25,000	$	72,500
Equipment		44,200		33,800
Client contracts		0		116,500
In-process research and development		0		38,250
Notes payable		(75,500)		(84,450)

At December 31, 2015, the following financial information is available for consolidation:

	Pratt			Spider
Cash	$	15,000		$	19,300
Receivables		105,500			70,000
Inventory		160,500			70,500
Investment in Spider		528,900			0
Computer software		223,500			25,000
Buildings (net)		612,250			173,500
Equipment (net)		307,000			44,200
Client contracts		0			0
Goodwill		0			0
Total assets	$	1,952,650		$	402,500
Accounts payable	$	(91,400)		$	(34,500)
Notes payable		(552,250)			(75,500)
Common stock		(380,000)			(100,000)
Additional paid-in capital		(170,000)			(25,000)
Retained earnings		(759,000)			(167,500)
Total liabilities and equities	$	(1,952,650)		$	(402,500)

Note: Parentheses indicate a credit balance.

Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2015.

Answer 1

Solution

Consolidated balance sheet

	Pratt ($)	Spider ($)	Adjustment ($)	Consolidation ($)
Cash	15,000	19,300		34,300
Receivables	105,500	70,000		175,500
Inventory	160,500	70,500		231,000
Investment in Spider	528,900	-	(528,900)	-
Computer software	223,500	25,000	47,500	296,000
Buildings (net)	612,250	173,500		785,750
Equipment (net)	307,000	44,200	(10,400)	340,800
R&D			38,250	38,250
Client contracts	-	-	116,500	116,500
Goodwill	-	-	53,500	53,500
Total assets	1,952,650	402,500		2,071,600
Accounts payable	91,400	34,500		125,900
Notes payable	552,250	75,500	8,950	636,700
Common stock	380,000	100,000	(100,000)	380,000
Additional paid-in capital	170,000	25,000	(25,000)	170,000
Retained earnings	759,000	167,500	(167,500)	759,000
Total liabilities and equities	1,952,650	402,500		20,71,600

Net assets	475,400
Less Cash paid	528,900
Goodwill	53,500

Net Assets

Total Assets of Spider 402,500

Add Adjustments 191,850 (47,500+38,250-10,400+116,500)

Total Assets 594,350

Less Total Liabilities 118,950 (34,500+75,500+8,950)

Net Assets 475,400

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