On January 1, NewTune Company exchanges 19,681 shares of its common stock for al
ID: 2329090 • Letter: O
Question
On January 1, NewTune Company exchanges 19,681 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 pald $37,050 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: $54,000 51,500 110,750 303,500 84,750 271,500 0 255,750 (65,250) (56,850) music catalog research and development Precombination book values for the two companies are as follows: Cash $75,750 45,750 54, 000 110,750 84,750 340,000 115,000 s 1,831,000 $ 410,250 82,250 410,000 923,000 catalog Equipment (net) Accounts payable Common stock (148,000) $ (35,000) (436,000) (65,250) (400,000) (50,000) (30,000) (30,000) (817,0001 (230,000) Additional paid-in capital Totals $(1,831,000) $(110,750 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.Explanation / Answer
Fair Value of consideration transferred 984050 (19681*50) Fair Value of net assets acquired Cash $45,750 Receivables $51,500 Trademarks $303,500 Record music catalog $271,500 In Process R&D $255,750 Equipment (net) $115,000 Accounts Payable ($35,000) Notes Payable ($56,850) $951,150 Goodwill $32,900 Journal Entry by Newtune to record the combination Cash $45,750 Receivables $51,500 Trademarks $303,500 Record music catalog $271,500 In Process R&D $255,750 Equipment (net) $115,000 Goodwill $32,900 To Accounts Payable $35,000 To Notes Payable $56,850 To Common Stock (New tune par value) $78,724 (19681*4) To Additional Paid-in Capital $905,326 (19681*46) (Being recording of merger in Newtune Books) Additional Paid-in Capital $37,050 To Cash $37,050 (Being Cash paid for stock issuance costs) a Post-Combination Balance Sheet NEWTUNE COMPANY AND ON THE GO INC POST COMBINATION BALANCE SHEET 1-Jan-18 ASSETS In $ LIABILITIES AND STOCKHOLDERS EQUITY In $ (75750+45750-37050) Cash 84450 Accounts Payable 183000 (148000+35000) (82250+51500) Receivables 133750 Notes Payable 492850 (436000+56850) (410000+303500) Trademarks 713500 Common Stock 478724 (400000+78724) (923000+271500) Record Music catalog 1194500 Additional Paid-in Capital 898276 30000+905326-37050 Research and Development asset 255750 Retained Earnings 817000 (340000+115000) Equipment 455000 Goodwill 32900 Total assets 2869850 Total Liabilities and Equities 2869850 b If On the Go inc incorporates as separate legal entity, Newtune would record the journal entry for the acquistion as an investment in shares of On the Go Inc Investment in On-the-Go Co 984050 To Common Stock 78724 To Additional Paid-In Capital 905326 (Being Investment in On the Go Inc) Additional Paid-in Capital $37,050 To Cash $37,050 (Being Cash paid for stock issuance costs) NEWTUNE COMPANY AND ON THE GO INC CONSOLIDATED WORKSHEET 1-Jan-18 Consolidated Entries Accounts Newtune Co On-The-Go Inc Debit Credit Consolidated Totals Cash 38700 45750 84450 Receivables 82250 54000 2500 133750 Investment in On-the-Go 984050 984050 0 Trademarks 410000 110750 192750 713500 Record Music catalog 923000 84750 186750 1194500 Research and Development asset 255750 255750 Equipment 340000 115000 455000 Goodwill 32900 32900 Total Assets 2778000 410250 2869850 Accounts Payable 148000 35000 183000 Notes Payable 436000 65250 8400 492850 Common Stock 478724 50000 50000 478724 Additional Paid-in Capital 898276 30000 30000 898276 Retained Earnings 817000 230000 230000 817000 Total Liabilities and Equities 2778000 410250 2869850