Question

On January 1, NewTune Company exchanges 17,808 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 $36,900 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	$	32,000			$	27,550
Trademarks		98,250				270,750
Record music catalog		82,500				269,250
In-process research and development		0				225,000
Notes payable		(66,750	)			(60,750	)

Precombination book values for the two companies are as follows:

	NewTune				On-the-Go
Cash	$	83,500			$	45,500
Receivables		87,500				32,000
Trademarks		443,000				98,250
Record music catalog		886,000				82,500
Equipment (net)		349,000				138,000
Totals	$	1,849,000			$	396,250
Accounts payable	$	(132,000	)		$	(57,000	)
Notes payable		(385,000	)			(66,750	)
Common stock		(400,000	)			(50,000	)
Additional paid-in capital		(30,000	)			(30,000	)
Retained earnings		(902,000	)			(192,500	)
Totals	$	(1,849,000	)		$	(98,250	)

1. 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.
2. 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

ANSWER :

Post-combination balance sheet
For New Tune as of the acquisition date.
Liabilities	$	Assets	$
Equity Capital		Fixed Asset
Common Stock	471232	Equipment (Net)	487000
Additional Paid In Capital	30000
		Intangible Asset
Reserve & Surplus		In-process research and development	225000
Retained Earning	1829300	Trademarks	713750
		Record music catalog	1155250
Long Term Debt	0	Goodwill	140232
		Stock Issue Expenses	36900
		Current Assets
Current Liabilities		Accounts Receivable	115050
Accounts Payable	189000	Cash	92100
Notes Payable	445750
TOTAL	2965282	TOTAL	2965282
Notes :
Stock issue expenses to be capitalized and amortized over the year of benefits
In-process research and development to be capitalized and amortized over the year of benefits.

WORKING NOTES

(in the books of New Tune

Journal Entry Note :

Debit           Credit              Account Ledger

225000                               In-process research and development

27550                                 Accounts Receivable

45500                                 Cash

270750                               Trademarks

269250                               Record music catalog

138000             Equipment                      

140232                               Goodwill

               57000                 Accounts Payable

               60750                 Notes Payable

              998532               Purchase Consideration