Question

On January 1, NewTune Company exchanges 16,888 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 $38,600 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: Receivables Trademarks Record music catalog In-process research and development Notes payable Book Values $ 29,250 106,500 67,000 0 (62,500) Fair Values $ 22,900 282,000 190,000 221,250 (54,500) Precombination book values for the two companies are as follows: NewTune 64,000 117,000 Cash Receivables Trademarks Record music catalog Equipment (net) Totals Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings Totals 868,000 402,000 $ 1,945,000 $ (158,000) (450,000) (400,000) (30,000) (907,000) $(1,945,000) On-the-Go $ 45,000 29, 250 106,500 67,000 150,000 $ 397,750 $ (44,750) (62,500) (50,000) (30,000) (210, 500) $ (106,500)

Answer 1

Post combination Balance sheet of New tune company and On-the-go, inc.

Assets	Amount	Liabilities and stockholders equity	Amount
Cash	$70,400	Accounts payable	$202,750
Receivables	$139,900	Notes payable	$504,500
Trade marks	$776,000	Common stock	$467,552
Record music catalog	$1,058,000	Additional paid-in-capital	$768,248
Equipment	$552,000	Retained earnings	$907,000
Research and development	$221,250
Good will	$32,500
Total assets	$2,850,050	Total liabilities and equities	$2,850,050

2. Consolidation worksheet

	New tune	On-the-go	Debit	Credit	Consolidated tools
Cash	$25,400	$45,000	0	0	$70,400
Receivables	$117,000	$29,250	0	-(A)$63,50	$139,900
Investment in the ON-THE-GO	$844,400	0	0	-(s)$291,000 -(A)$553,400
Trade marks	$494,000	$106,500	-(A)$175,500	0	$776,000
Record music catalog	$868,000	$67,000	-(A)$123,000	0	$1,058,000
Equipment	$402,000	$150,000	0	0	$552,000
Research and development	0	0	-(A) $221,250	0	$221,250
Good will	0	0	-(A)$32,500	0	$32,500
Total	$2,750,800	$397,250			$2,850,050
Accounts payable	$158,000	$44,750	0	0	$202,750
Notes payable	$450,000	$62,500	-(A)$8,000	0	$504,500
Common stock	$467,552	$50,000	-(s) $50,000	0	$467,552
Additional paid-in-capital	$768,248	$30,000	-(s)$30,000	0	$768,248
Retained earnings	$907,000	$210,000	-(s)$210,000	0	$907,000
Total	$2,750,800	$397,250	$850,250	$850,750	$2,850,050

Notes:

Consideration transferred at fair value		$844,400
Book value		$291,000
Excess of fair over book value		$553,400
Allocation of excess fair value
To receivable	$6,350
To trade marks	($175,000)
To record music catalog	($123,000)
To research and development	($221,250)
To notes payable	($8,000)
Good will		$32,500

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