P 2-29 in textbook. 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:
Computer software
Equipment
Client contracts
In-process research and
development
Notes payable
Book Values
$ 20,000
40,000
-0-
(60,000)
Fair Values
$ 70,000
30,000
100,000
40,000
(65,000)
At December 31, 2018, the following financial information is available for consolidation:
Cash
Receivables
Inventory
Investment in Spider
Computer software
Buildings (net)
Equipment (net)
Pratt
$36,000
116,000
140,000
495,000
210,000
595,000
308,000
Spider
$18,000
52,000
90,000
-0-
20,000
130,000
40,000
Client contracts
In-Process R&D
Goodwill
Total Assets
-0-
-0-
-0-
-0-
0
0
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)
