On January 1, NewTune Company exchanges 19,633 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 $45,550 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 $ 62,500 $ 60,400 Trademarks 105,500 294,500 Record music catalog 75,750 270,000 In-process research and development 0 243,000 Notes payable (67,000 ) (61,700 ) Precombination book values for the two companies are as follows: NewTune On-the-Go Cash $ 76,000 $ 52,750 Receivables 162,000 62,500 Trademarks 485,000 105,500 Record music catalog 875,000 75,750 Equipment (net) 332,000 139,000 Total Assets $ 1,930,000 $ 435,500 Accounts payable $ (159,000 ) $ (51,500 ) Notes payable (451,000 ) (67,000 ) Common stock (400,000 ) (50,000 ) Additional paid-in capital (30,000 ) (30,000 ) Retained earnings (890,000 ) (237,000 ) Total liabilities and equities $ (1,930,000 ) $ (435,500 ) 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 19,633 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 $45,550 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	$	62,500		$	60,400
Trademarks		105,500			294,500
Record music catalog		75,750			270,000
In-process research and development		0			243,000
Notes payable		(67,000	)		(61,700	)

Precombination book values for the two companies are as follows:

	NewTune	On-the-Go
Cash	$	76,000		$	52,750
Receivables		162,000			62,500
Trademarks		485,000			105,500
Record music catalog		875,000			75,750
Equipment (net)		332,000			139,000
Total Assets	$	1,930,000		$	435,500
Accounts payable	$	(159,000	)	$	(51,500	)
Notes payable		(451,000	)		(67,000	)
Common stock		(400,000	)		(50,000	)
Additional paid-in capital		(30,000	)		(30,000	)
Retained earnings		(890,000	)		(237,000	)
Total liabilities and equities	$	(1,930,000	)	$	(435,500	)

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.