Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, 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:   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) At December 31, 2018, the following financial information is available for consolidation:   Pratt Spider Cash   $    36,000 $      18,000 Receivables           116,000   52,000 Inventory   140,000   90,000 Investment in Spider   495,000     –0– Computer software   210,000   20,000 Buildings (net)   595,000   130,000 Equipment (net)   308,000   40,000 Client contracts     –0–     –0– Goodwill          –0–         –0– Total assets   $  1,900,000   $  350,000 Accounts payable   $    (88,000)   $   (25,000) Notes payable   (510,000)   (60,000) Common stock   (380,000)   (100,000) Additional paid-in capital   (170,000)   (25,000) Retained earnings      (752,000)     (140,000) Total liabilities and equities   $(1,900,000)   $(350,000)   Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2018.

Question

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, 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:

 

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)

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

 

Pratt

Spider

Cash

  $    36,000

$      18,000

Receivables

          116,000

  52,000

Inventory

  140,000

  90,000

Investment in Spider

  495,000

    –0–

Computer software

  210,000

  20,000

Buildings (net)

  595,000

  130,000

Equipment (net)

  308,000

  40,000

Client contracts

    –0–

    –0–

Goodwill

         –0–

        –0–

Total assets

  $  1,900,000

  $  350,000

Accounts payable

  $    (88,000)

  $   (25,000)

Notes payable

  (510,000)

  (60,000)

Common stock

  (380,000)

  (100,000)

Additional paid-in capital

  (170,000)

  (25,000)

Retained earnings

     (752,000)

    (140,000)

Total liabilities and equities

  $(1,900,000)

  $(350,000)

 

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

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