Question

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2015, 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, 2015, the following financial information is available for consolidation:

	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, 2015.

Answer 1

Consolidated balancesheet of Pratt and spider as of december 31, 2015.
Particulars	Pratt	Spider	Adjustment	Elimination	Consolidated
Equity and Liabilities
Shareholders Equity
Common Stock	$3,80,000	$1,00,000		-$1,00,000	$3,80,000
Additional paid in capital	$1,70,000	$25,000		-$25,000	$1,70,000
Retained earnings	$7,52,000	$1,40,000		-$1,40,000	$7,52,000
Current Liabilities
Accounts payable	$88,000	$25,000			$1,13,000
Note Payables	$5,10,000	$60,000	$5,000		$5,75,000
Total	$19,00,000	$3,50,000			$19,90,000
Assets
Non Current Assets
Fixed assets
tangible
Building	$5,95,000	$1,30,000			$7,25,000
Equipment	$3,08,000	$40,000	-$10,000		$3,38,000
Intengible
Computer Software	$2,10,000	$20,000	$50,000		$2,80,000
Client Contract			$1,00,000		$1,00,000
Goodwill on colsolidation			$95,000		$95,000
Current Assets
Cash	$36,000	$18,000			$54,000
receivables	$1,16,000	$52,000			$1,68,000
Inventory	$1,40,000	$90,000			$2,30,000
Investment in spider	$4,95,000	$0		-$4,95,000	$0
Total	$19,00,000	$3,50,000			$19,90,000
W.N.1
particulars	$
Common shares	$1,00,000
additional paid in capital	$25,000
retained earnings	$1,40,000
computer software	$50,000
equipment	-$10,000
client contract	$1,00,000
notes payable	-$5,000
	$4,00,000
Investment made	$4,95,000
Good will on colsolidation	$95,000