Question

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $499,450 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	$	30,000			$	61,750
Equipment		70,000				57,100
Client contracts		0				120,800
In-process research and development		0				34,250
Notes payable		(96,000	)			(105,200	)

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

	Pratt				Spider
Cash	$	9,750			$	10,600
Receivables		104,000				66,500
Inventory		133,500				103,500
Investment in Spider		499,450				0
Computer software		241,000				30,000
Buildings (net)		613,500				172,400
Equipment (net)		314,000				70,000
Client contracts		0				0
Goodwill		0				0
Total assets	$	1,915,200			$	453,000
Accounts payable	$	(89,700	)		$	(68,500	)
Notes payable		(511,500	)			(96,000	)
Common stock		(380,000	)			(100,000	)
Additional paid-in capital		(170,000	)			(25,000	)
Retained earnings		(764,000	)			(163,500	)
Total liabilities and equities	$	(1,915,200	)		$	(453,000	)

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

Answer 1

Solution:-

Goodwill calculation	Amount
Sales consideration	$4,99,450
Book value(approximately )	$2,70,000
Excess of fair value over book value	= 4,99,450 - 2,70,000 = $2,29,450
Computer software	= 30,000 - 61750 = $31,750
Equipment	= 57,100 - 70,000 = - $12,900
Client contracts	$1,20,800
In process research and development	$34,250
Note payable	$9200
Goodwill	=( 31,750 + 1,20,800 + 34,250 + 9,200 - 12,900) - (229450) = - $46,350

Assets and liabilities :-

Assets: particulars	Pratt	Spider	Debit	credit	consolidated
Cash	$9,750	$10,600			= 10,600 + 9,750 = $20,350
Receivables	$1,04,000	$66,500			= 104,000 + 66,500 =$1,70,500
Inventory	$1,33,500	$1,03,000			= 1,33,500 + 1,03,000 = $2,37,000
Investment in spider	$4,99,450	$0			$0
Computer software	$2,41,000	$30,000	$31,750		= 241000 + 30000 + 31750 = $3,02,750
Buildings(net)	$6,13,000	$1,75,400			= 6,13,000 + 1,75,400 = $788400
Equipments(net)	$3,14,000	$70,000		- $12,900	= 314000 + 70000 - 12900 = $3,71,100
Client contracts	$0	$0	$1,20,800		$1,20,800
In process research and development	$0	$0	$34,250		$34,250
Good will	$0	$0	- $46,350		- $46,350
Total assets	$1,915,200	$4,53,00			= (20,350 + 170500 + 302750 + 788400 + 371100 + 120800 + 34250  - $46,350 = $1,998,800
liabilities and equities:
Account payable	$89,700	$68,500			= 89,700 + 68,500 =$1,58,200
Notes payable	$5,11,500	$96,000		$9200	= 5,11,500 + 96,000 + 9200 = $6,16,700
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	$7,64,000	$1,03,500	$1,03,500		$7,64,000
Total liabilities &equities	$1,915,200	$453,000			= $3,685,600

Consolidated balance sheet:-

Assets			Liabilities
Cash	$20,350		accounts payable	$1,58,200
receivables	$1,70,500		notes payable	$ $6,16,700
inventory	$2,37,000
computer software	$3,02,750
buildings (net)	$788400		common stock	$3,80,000
equipments(net)	$3,71,100		additional paid -in- capital	$1,70,000
clients contracts	$1,20,800		retained earnings	$7,64,000
in - process research and development	$34,250
goodwill	- $46,350
Total assets	$1,998,800		Total liabilities & equities	$3,685,600