Question

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $510,100 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	$	24,000			$	70,000
Equipment		52,500				37,200
Client contracts		0				116,000
In-process research and development		0				27,000
Notes payable		(103,000	)			(109,350	)

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

	Pratt				Spider
Cash	$	11,350			$	36,000
Receivables		154,500				56,000
Inventory		167,500				107,500
Investment in Spider		510,100				0
Computer software		215,500				24,000
Buildings (net)		577,750				138,000
Equipment (net)		316,000				52,500
Client contracts		0				0
Goodwill		0				0
Total assets	$	1,952,700			$	414,000
Accounts payable	$	(94,200	)		$	(26,000	)
Notes payable		(532,500	)			(103,000	)
Common stock		(380,000	)			(100,000	)
Additional paid-in capital		(170,000	)			(25,000	)
Retained earnings		(776,000	)			(160,000	)
Total liabilities and equities	$	(1,952,700	)		$	(414,000	)

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

Answer 1