
Concept explainers
a.
Prepare a post-combination
a.

Explanation of Solution
The post-combination balance sheet for Company N as of the acquisition date is as follows:
Assets | Liabilities and owner's equity | ||
Cash | $ 64,000 | Accounts payable | $ 144,000 |
Receivables | $ 213,000 | Notes payable | $ 415,000 |
Trademarks | $ 625,000 | Common stock | $ 460,000 |
Record music catalog | $ 1,020,000 | Additional paid-in capital | $ 695,000 |
Research and development asset | $ 200,000 | $ 860,000 | |
Equipment (net) | $ 425,000 | ||
$ 27,000 | |||
Totals | $ 2,574,000 | Totals | $ 2,574,000 |
Table: (1)
Working note:
General Journal | ||||
Date | Account Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
i) | Receivables | $ 63,000 | ||
Trademarks | $ 225,000 | |||
Record music catalog | $ 180,000 | |||
In-process research and development | $ 200,000 | |||
Cash | $ 29,000 | |||
Equipment | $ 105,000 | |||
Goodwill | $ 27,000 | |||
Accounts payable | $ 34,000 | |||
Notes payable | $ 45,000 | |||
Common stock | $ 60,000 | |||
Additional paid-in capital | $ 690,0000 | |||
(to record the assets and liabilities acquired) | ||||
ii) | Stock issuance cost | $ 25,000 | ||
Cash | $ 25,000 | |||
(being Stock issuance cost paid) |
Table: (2)
Computation of the fair value of the consideration transferred:
Thus, the fair value of the consideration transferred in this combination is $750,000.
b.
Prepare a worksheet to consolidate the two companies as of the combination date.
b.

Explanation of Solution
The worksheet to consolidate the two companies as of the combination date is as follows:
Particulars | Company N | Company O | Consolidated Entries | Consolidated Balances | ||
Cash | $ 35,000 | $ 29,000 | $ 64,000 | |||
Receivables | $ 150,000 | $ 65,000 | $ 2,000 | $ 213,000 | ||
Investment of Company O | $ 750,000 | $ - | $ 270,000 | |||
$ 480,000 | $ - | |||||
Trademarks | $ 400,000 | $ 95,000 | $ 130,000 | $ 625,000 | ||
Record music catalog | $ 840,000 | $ 60,000 | $ 120,000 | $ 1,020,000 | ||
Research and development asset | $ - | $ - | $ 200,000 | $ 200,000 | ||
Equipment (net) | $ 320,000 | $ 105,000 | $ 425,000 | |||
Goodwill | $ - | $ - | $ 27,000 | $ 27,000 | ||
Totals | $ 2,495,000 | $ 354,000 | $ 2,574,000 | |||
Accounts payable | $ (110,000) | $ (34,000) | $ (144,000) | |||
Notes payable | $ (370,000) | $ (50,000) | $ 5,000 | $ (415,000) | ||
Common stock | $ (460,000) | $ (50,000) | $ 50,000 | $ (460,000) | ||
Additional paid-in capital | $ (695,000) | $ (30,000) | $ 30,000 | $ (695,000) | ||
Retained earnings | $ (860,000) | $ (190,000) | $ 190,000 | $ (860,000) | ||
Totals | $ (2,495,000) | $ (354,000) | $ 752,000 | $ 752,000 | $ (2,574,000) |
Table: (3)
c.
Explain the way in which the balance sheet accounts compare across parts (a) and (b).
c.

Explanation of Solution
The balance sheet across parts (a) and (b) are however similar and only the presentation differs.
Part (a) represents the combined balances only while part (b) represents separate balances as well.
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