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

Pratt company has acquired all the shares of Spider, therefore there would be no non controlling interest
We would first calculate the Goodwill if any from the business combination
Consideration transferred at fair value					$510,100
Less : Book Value of Net asset acquired					$285,000		(100000+25000+160000)
Excess consideration over book value					$225,100
Excess would be allocated to below assets and liabilities
To computer software			(70000-24000)	$46,000
to equipment			(37200-52500)	-$15,300
to client contracts			(116000-0)	$116,000
to in process research and development			(27000-0)	$27,000
to notes payable			(103000-109350)	-$6,350	$167,350
Goodwill					$57,750
Consolidated Worksheet
Particulars		Pratt	Spider	Debit	Credit	Consolidated
Cash		$11,350	$36,000	$0	$0	$47,350
Receivables		$154,500	$56,000	$0	$0	$210,500
Inventory		$167,500	$107,500	$0	$0	$275,000
Investment in Spider		$510,100	$0		$285,000	$0
					$225,100
Computer Software		$215,500	$24,000	$46,000		$285,500
Buildings (net)		$577,750	$138,000			$715,750
Equipment (net)		$316,000	$52,500		$15,300	$353,200
Client Contracts		$0	$0	$116,000		$116,000
Research & Development				$27,000		$27,000
Goodwill		$0	$0	$57,750		$57,750
Total Assets		$1,952,700	$414,000			$2,088,050
Accounts Payable		$94,200	$26,000			$120,200
Notes Payable		$532,500	$103,000		$6,350	$641,850
Common Stock		$380,000	$100,000	$100,000		$380,000
Additional paid-in capital		$170,000	$25,000	$25,000		$170,000
Retained earnings		$776,000	$160,000	$160,000		$776,000
Total Liabilities and equities		$1,952,700	$414,000			$2,088,050
In the consolidated worksheet we have done adjustment for recording the assets and liabilities at fair value
Since, balance sheet is consolidated investment in Spider would not be reported by Company Pratt
All the assets and liabilities of Spider would be consolidated
Equity of Spider would not be reported in consolidation
Pratt and Spider subsidiary
Consolidated Balance as 31st December 2018
Cash		$47,350
Receivables		$210,500
Inventory		$275,000
Computer Software		$285,500
Buildings (net)		$715,750
Equipment (net)		$353,200
Client Contracts		$116,000
Research & Development		$27,000
Goodwill		$57,750
Total Assets		$2,088,050
Accounts Payable		$120,200
Notes Payable		$641,850
Common Stock		$380,000
Additional paid-in capital		$170,000
Retained earnings		$776,000
Total Liabilities and equities		$2,088,050