Question

On January 1, NewTune Company exchanges 17,907 shares of its common stock for all of the outstanding shares of On-the-Go, Inc. Each of NewTune’s shares has a $4 par value and a $50 fair value. The fair value of the stock exchanged in the acquisition was considered equal to On-the-Go’s fair value. NewTune also paid $35,800 in stock registration and issuance costs in connection with the merger.

Several of On-the-Go’s accounts’ fair values differ from their book values on this date:

	Book Values				Fair Values
Receivables	$	51,750			$	48,400
Trademarks		114,750				282,750
Record music catalog		67,500				227,250
In-process research and development		0				221,250
Notes payable		(70,750	)			(63,050	)

Precombination book values for the two companies are as follows:

	NewTune				On-the-Go
Cash	$	69,250			$	41,250
Receivables		117,750				51,750
Trademarks		452,000				114,750
Record music catalog		913,000				67,500
Equipment (net)		390,000				150,000
Totals	$	1,942,000			$	425,250
Accounts payable	$	(182,000	)		$	(48,500	)
Notes payable		(409,000	)			(70,750	)
Common stock		(400,000	)			(50,000	)
Additional paid-in capital		(30,000	)			(30,000	)
Retained earnings		(921,000	)			(226,000	)
Totals	$	(1,942,000	)		$	(114,750	)

1. Assume that this combination is a statutory merger so that On-the-Go’s accounts will be transferred to the records of NewTune. On-the-Go will be dissolved and will no longer exist as a legal entity. Prepare a postcombination balance sheet for NewTune as of the acquisition date.
2. Assume that no dissolution takes place in connection with this combination. Rather, both companies retain their separate legal identities. Prepare a worksheet to consolidate the two companies as of the combination date.

Answer 1

Answer 2

The above answer is correct, except for the very last chart under adjustment:debit. The 7,700 should be allocated to "notes payable" and not "accounts payable".