Pratt Company acquired all of the outstanding shares of Spider, Inc., on December 31, 2021, 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:
Pratt Company acquired all of the outstanding shares of Spider, Inc., on December 31, 2021, 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, 2021, the following financial information is available for consolidation (credit balances in parentheses):
| 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 | |||||
| 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 | ) | |||
| (752,000 | ) | (140,000 | ) | ||||
| Total liabilities and equities | $ | (1,900,000 | ) | $ | (350,000 | ) | |
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