Question

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $497,700 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	$	52,500			$	101,500
Equipment		63,800				49,200
Client contracts		0				111,000
In-process research and development		0				31,500
Notes payable		(105,500	)			(111,650	)

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

	Pratt				Spider
Cash	$	30,200			$	19,900
Receivables		133,500				54,000
Inventory		168,500				69,500
Investment in Spider		497,700				0
Computer software		247,500				52,500
Buildings (net)		605,250				172,000
Equipment (net)		341,000				63,800
Client contracts		0				0
Goodwill		0				0
Total assets	$	2,023,650			$	431,700
Accounts payable	$	(97,400	)		$	(56,000	)
Notes payable		(525,250	)			(105,500	)
Common stock		(380,000	)			(100,000	)
Additional paid-in capital		(170,000	)			(25,000	)
Retained earnings		(851,000	)			(145,200	)
Total liabilities and equities	$	(2,023,650	)		$	(431,700	)

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

Answer 1

pratt company

Consolidated balance sheet

assets	Amount	Liabilities and stockholders’ equity	Amount
Cash	$50100	Accounts payable	$(153400)
Receivables	$187500	Notes payable	$(636900)
Inventory	$238000	Common stock	$(380000)
Research and development asset	$31500	Additional paid in capital	$(170000)
Computer software	$349000	Retained earnings	$(851000)
Building (net)	$777250
Equipment (net)	$390200
Client contracts	$111000
Good will	$56750
Total assets	$2191300	Total liabilities and equities	$2191300

            Consideration transferred at fair value                        = $497700

            Book value ($100000+$25000+$145200)                   = $270200    

            Excess fair value over book value                             = $227500

            Computer software ($101500-$52500) = $49000

            Equipment ($49200-$63800)             =$ (14600)

            Client contracts                                  = $111000

            In process research and development = $31500

            Notes payable ($111650-$105500)    = $(6150)             = $170750

            Goodwill                                                                         = $56750