Pratt Company acquired all of Spider, Inc's outstanding shares on December 31, 2011, for $495,000 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting...

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Pratt Company acquired all of Spider, Inc's outstanding shares on December 31, 2011, 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 Sprider'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

100,000

In-process research and development

40,000

Notes payable

(60,000)

(65,000)

At December 31, 2011, the following financial information is available for consolidation:

(Please refer to the next tab - P02-20 Entry for financial information)

Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2011.

Answered Same DayDec 24, 2021

Answer To: Pratt Company acquired all of Spider, Inc's outstanding shares on December 31, 2011, for $495,000...

David answered on Dec 24 2021

133 Votes

Solution:
Cost ................................................................... $495,000
Book value .......................................................... 265,000
Excess cost over book value .................................. 230,000
Allocation of excess cost to
specific assets and liabilities
based on fair values:
to Computer software ...................................... $50,000 (70,000 – 20,000)
to Equipment .................................................. (10,000)(30,000 – 40,000)
to Client contracts ........................................... 100,000
to IPR&D ........................................................ 40,000
to Notes payable ............................................. (5,000)((65,000) -60,000)
...

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Pratt Company acquired all of Spider, Inc's outstanding shares on December 31, 2011, for $495,000 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting...

Answer To: Pratt Company acquired all of Spider, Inc's outstanding shares on December 31, 2011, for $495,000...

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