Question

On January 1, 2015, NewTune Company exchanges 17,496 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 $31,250 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	$	79,000		$	72,100
Trademarks		99,250			260,500
Record music catalog		80,000			240,500
In-process research and development		0			231,000
Notes payable		(60,750	)		(51,400	)

Precombination January 1, 2015, book values for the two companies are as follows:

	NewTune				On-the-Go
Cash	$	60,750			$	35,750
Receivables		96,250				79,000
Trademarks		404,000				99,250
Record music catalog		923,000				80,000
Equipment (net)		365,000				112,000
Totals	$	1,849,000			$	406,000
Accounts payable	$	(189,000	)		$	(58,250	)
Notes payable		(416,000	)			(60,750	)
Common stock		(400,000	)			(50,000	)
Additional paid-in capital		(30,000	)			(30,000	)
Retained earnings		(814,000	)			(207,000	)
Totals	$	(1,849,000	)		$	(406,000	)

Note: Parentheses indicate a credit balance.

a.	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.

   

       

b.

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. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)

       

Answer 1