Question

On January 1, 2015, NewTune Company exchanges 17,496 shares of its common stock for all of...

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.)

       

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