Question

On January 1, NewTune Company exchanges 17,360 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 $44,650 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 $ 44,250 $ 41,300 Trademarks 117,250 277,750 Record music catalog 66,000 186,750 In-process research and development 0 261,000 Notes payable (54,750 ) (48,350 ) Precombination book values for the two companies are as follows: NewTune On-the-Go Cash $ 62,000 $ 50,250 Receivables 125,000 44,250 Trademarks 441,000 117,250 Record music catalog 873,000 66,000 Equipment (net) 344,000 108,000 Totals $ 1,845,000 $ 385,750 Accounts payable $ (150,000 ) $ (43,500 ) Notes payable (378,000 ) (54,750 ) Common stock (400,000 ) (50,000 ) Additional paid-in capital (30,000 ) (30,000 ) Retained earnings (887,000 ) (207,500 ) Totals $ (1,845,000 ) $ (117,250 ) 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. 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

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Part A
Fair value of consideration transferred (17,360*$50)		$                                                  868,000
Fair value of net assets acquired:
Cash	$                                    50,250
Receivables	$                                    41,300
Trademarks	$                                  277,750
Record music catalog	$                                  186,750
In-process R&D	$                                  261,000
Equipment	$                                  108,000
Accounts payable	$                                  (43,500)
Notes payable	$                                  (54,750)	$                                                  826,800
Goodwill		$                                                    41,200
Entry by NewTune to record combination with On-the-Go:
	Debit	Credit
Cash	$                                    50,250
Receivables	$                                    41,300
Trademarks	$                                  277,750
Record Music Catalog	$                                  186,750
Capitalized R&D	$                                  261,000
Equipment	$                                  108,000
Goodwill	$                                    41,200
Accounts Payable		$                                                    43,500
Notes Payable		$                                                    54,750
Common Stock (18,430*$4)		$                                                    69,440
Additional Paid‑in Capital (18,430*$46)		$                                                  798,560
(To record merger with On-the-Go at fair value)
Additional Paid‑in Capital	$                                    44,650
Cash		$                                                    44,650
(Stock issue costs incurred)
Balance Sheet:
Assets		Liabilities and Owners’ Equity
Cash	$                                    67,600	Accounts payable	$              193,500
Receivables	$                                  166,300	Notes payable	$              432,750
Trademarks	$                                  718,750
Record music catalog	$                              1,059,750
Capitalized R&D	$                                  261,000	Common stock	$              469,440
Equipment	$                                  452,000	Additional paid‑in capital	$              783,910
Goodwill	$                                    41,200	Retained earnings	$              887,000
Total	$                              2,766,600	Total	$           2,766,600