On January 1, NewTune Company exchanges 19,336 shares of its common stock for al
ID: 2331901 • Letter: O
Question
On January 1, NewTune Company exchanges 19,336 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 $45,450 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 55,250 48,400 Fair Values Receivables Trademarks Record music catalog In-process research and development Notes payable 294,000 256,000 249,000 99,000 66,250 (72,500) 63,900) Precombination book values for the two companies are as follows: NewTune $79,500 53,500 55,250 99,000 66,250 324,000137,000 $ 1,853,000 411,000 Receivables Trademarks Record music catalog Equipment (net) Totals 48,500 478,000 923,000 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings Totals $ (144,000) 40,500) (409, 000) 72,500) (400,000) (50,000) (30,000) (30,000) (870,000) (218,0001 $ (1,853,000) (99,000) 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 dateExplanation / Answer
(a) Post Combination Balance Sheet :-
Assets
Liabilities & Owners Equity
Cash
87550*
Accounts Payable
184500*
Receivables
96900*
Notes Payable
472900*
Trademarks
772000*
Common Stock
477344*
Record Music Catalog
1179000*
Additional Paid in Capital
874006*
Equipment
461000*
Retained Earnings
870000
Research & Development Asset
249000
Goodwill
33300
Total Assets
2878750
Total Liabilities & Owners Equity
2878750
*Cash = 79500 + 53500 – 45450 = 87550
Receivables = 48500 + 48400 = 96900
Trademarks = 478000 + 294000 = 772000
Record Music Catalog = 923000 + 256000 = 1179000
Equipment = 324000 + 137000 = 461000
Accounts Payable = 144000 + 40500 = 184500
Notes Payable = 409000+63900 = 472900
Common Stock = 400000 + (19336 * 4) = 477344
Additional Paid in Capital = 30000 + (19336 * 46) – 45450 = 874006
(b)
NewTune Inc.
On the Go co.
Debit
Credit
Consolidated Totals
Cash
34050
53500
0
0
87550
Receivables
48500
55250
0
6850
96900
Investment in on-the Go co.
966800
0
0
966800
0
Trademarks
478000
99000
195000
0
772000
Record Music Catalog
923000
66250
189750
0
1179000
Research & Development Asset
0
0
249000
0
249000
Equipment
324000
137000
0
0
461000
Goodwill
0
0
33000
0
33000
Totals
2774350
411000
666750
973650
2878450
Accounts Payable
144000
40500
0
0
184500
Notes Payable
409000
72500
8600
0
472900
Common Stock
477344
50000
50000
0
477344
Additional Paid in Capital
874006
30000
30000
0
874006
Retained Earnings
870000
218000
218000
0
870000
Totals
2774350
411000
306600
0
2878750
Assets
Liabilities & Owners Equity
Cash
87550*
Accounts Payable
184500*
Receivables
96900*
Notes Payable
472900*
Trademarks
772000*
Common Stock
477344*
Record Music Catalog
1179000*
Additional Paid in Capital
874006*
Equipment
461000*
Retained Earnings
870000
Research & Development Asset
249000
Goodwill
33300
Total Assets
2878750
Total Liabilities & Owners Equity
2878750