Question

On January 1, NewTune Company exchanges 18,100 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 falr value of the stock exchanged in the acquisition was considered equal to On-the-Go's fair value. NewTune also paid $33,500 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 Fair Values 68,750 $ 66,000 113,250 282,000 68,750 227,000 271,500 (72,250) (65,700) Precombination book values for the two companies are as follows: $ Cash Receivables Trademarks Record music catalog Equipment (net) Totals Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings Totals NewTune On-the-Go $ 70,750 40, 500 30, 250 68,750 486,000 113,250 853,000 68,750 413,000 110, eee $ 1,853,000 $ 401,250 (177,800 $ (56,000) (379, 800) (72,250) (400,000) (50,000) (30,000) (30,000) (867,900 (193,000) $(1,853,600) $ (401,250) $

Answer 1

Answer :

(a)

Calculation of Goodwill :

Particulars	Amount	Amount
Fair value of consideration transferred (shares issued)		905,000
Fair value of net assets acquired :
Cash	40,500
Receivables	66,000
Trademarks	282,000
Record music catalog	227,000
In-process research and development	271,500
Equipment	110,000
Accounts payable	-56,000
Notes payable	-65,700
Fair value of net assets acquired		875,300
Goodwill		29,700

Journal entries by NewTune to record combination :

	General Journal	Debit	Credit
1	Cash	40,500
	Receivables	66,000
	Trademarks	282,000
	Record Music Catalog	227,000
	Research and Development Asset	271,500
	Equipment	110,000
	Goodwill	29,700
	Accounts Payable		56,000
	Notes Payable		65,700
	Common Stock (NewTune par value)		72,400
	Additional Paid-in Capital		832,600
	(To record merger with On-the-Go at fair value)
2	Additional Paid-In Capital	33,500
	Cash		33,500
	(To record Stock issue costs)

(b)

Because On-the-Go continues as a separate legal entity, NewTune first records the acquisition as an investment in the shares of On-the-Go.

	General Journal	Debit	Credit
1	Investment in On-the-Go.	905000
	Common Stock (NewTune par value)		72,400
	Additional Paid-in Capital		832,600
	(To record acquisition of On-the-Go's shares)
2	Additional Paid-In Capital	33,500
	Cash		33,500
	(To record Stock issue costs)

NEWTUNE COMPANY AND ON-THE-GO, INC.
Consolidation Worksheet
Jan. 1
Accounts	NewTune Company	On-the-Go Company	Consolidation Entries Debit	Consolidation Entries Credit	Consolidated Totals
Cash	37,250	40,500			77,750
Receivables	30,250	68,750		2,750	96,250
Investment in On-the-Go	905,000			905,000	0
Trademarks	486,000	113,250	168,750		768,000
Record music catalog	853,000	68,750	158,250		1,080,000
Research and development asset			271,500		271,500
Equipment	413,000	110,000			523,000
Goodwill			29,700		29,700
Totals	2,724,500	401,250			2,846,200
Accounts payable	(177,000)	(56,000)			233,000
Notes payable	(379,000)	(72,250)	6,550		444,700
Common stock	(472,400)	(50,000)	50,000		472,400
Additional paid-in capital	(829,100)	(30,000)	30,000		829,100
Retained earnings	(867,000)	(193,000)	193,000		867,000
Totals	(2,724,500)	(401,250)	907,750	907,750	2,846,200

Note : The accounts of NewTune have already been adjusted for the first three journal entries indicated in the answer to Part b to record the acquisition fair value and the stock issuance costs.