Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31,

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:

At December 31, 2015, the following financial information is available for consolidation:

Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2015.

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)

Explanation / Answer

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

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