Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31,
ID: 2329683 • Letter: P
Question
Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $499,450 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, 2018, the following financial information is available for consolidation:
Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2018.
Book Values Fair Values Computer software $ 30,000 $ 61,750 Equipment 70,000 57,100 Client contracts 0 120,800 In-process research and development 0 34,250 Notes payable (96,000 ) (105,200 )Explanation / Answer
Solution:-
$2,70,000
= 4,99,450 - 2,70,000
= $2,29,450
= 30,000 - 61750
= $31,750
= 57,100 - 70,000
= - $12,900
$1,20,800
=( 31,750 + 1,20,800 + 34,250 + 9,200 - 12,900) - (229450)
= - $46,350
Assets and liabilities :-
= 10,600 + 9,750
= $20,350
= 104,000 + 66,500
=$1,70,500
= 1,33,500 + 1,03,000
= $2,37,000
= 241000 + 30000 + 31750
= $3,02,750
= 6,13,000 + 1,75,400
= $788400
= 314000 + 70000 - 12900
= $3,71,100
= (20,350 + 170500 + 302750 + 788400 + 371100 + 120800 + 34250 - $46,350
= $1,998,800
= 89,700 + 68,500
=$1,58,200
= 5,11,500 + 96,000 + 9200
= $6,16,700
Consolidated balance sheet:-
Goodwill calculation Amount Sales consideration $4,99,450 Book value(approximately )$2,70,000
Excess of fair value over book value= 4,99,450 - 2,70,000
= $2,29,450
Computer software= 30,000 - 61750
= $31,750
Equipment= 57,100 - 70,000
= - $12,900
Client contracts$1,20,800
In process research and development $34,250 Note payable $9200 Goodwill=( 31,750 + 1,20,800 + 34,250 + 9,200 - 12,900) - (229450)
= - $46,350
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