On January 1, NewTune Company exchanges 17,049 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 $37,300 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 (credit balances in parentheses): Book Values Fair Values Receivables $ 77,500 $ 72,400 Trademarks 108,000 238,500 Record music catalog 75,500 197,750 In-process research and development 0 262,500 Notes payable (68,500 ) (60,400 ) Precombination book values for the two companies are as follows: NewTune On-the-Go Cash $ 73,250 $ 44,000 Receivables 152,750 77,500 Trademarks 462,000 108,000 Record music catalog 875,000 75,500 Equipment (net) 360,000 117,000 Total Assets $ 1,923,000 $ 422,000 Accounts payable $ (172,000 ) $ (53,000 ) Notes payable (462,000 ) (68,500 ) Common stock (400,000 ) (50,000 ) Additional paid-in capital (30,000 ) (30,000 ) Retained earnings (859,000 ) (220,500 ) Total liabilities and equities $ (1,923,000 ) $ (422,000 ) 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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On January 1, NewTune Company exchanges 17,049 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 $37,300 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 (credit balances in parentheses):

	Book Values	Fair Values
Receivables	$	77,500		$	72,400
Trademarks		108,000			238,500
Record music catalog		75,500			197,750
In-process research and development		0			262,500
Notes payable		(68,500	)		(60,400	)

Precombination book values for the two companies are as follows:

	NewTune	On-the-Go
Cash	$	73,250		$	44,000
Receivables		152,750			77,500
Trademarks		462,000			108,000
Record music catalog		875,000			75,500
Equipment (net)		360,000			117,000
Total Assets	$	1,923,000		$	422,000
Accounts payable	$	(172,000	)	$	(53,000	)
Notes payable		(462,000	)		(68,500	)
Common stock		(400,000	)		(50,000	)
Additional paid-in capital		(30,000	)		(30,000	)
Retained earnings		(859,000	)		(220,500	)
Total liabilities and equities	$	(1,923,000	)	$	(422,000	)

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.